April 2019


         The fate of a bubble is to one day burst. But we never know precisely the day or the hour! The formation of bubbles on the markets is a phenomenon that fascinates both economists and psychologists because it is a subtle mix of rationality (the logic of fundamentals) and irrationality, sometimes bordering on insanity. The reference in this field is of course the bubble on the tulip bulb market in Amsterdam in 1637. But more recently, the earliest CyclOpe readers will remember in 1974 when a pound of raw sugar peaked in November at 65 cents, whereas it was worth only 2 cents five years earlier.


         The markets have just offered us a few new bubbles: two have burst and one has all the symptoms. First there was cobalt carried aloft by the prospects of electric batteries and by the chronic instability of the Democratic Republic of the Congo. For a few months, cobalt was a dream commodity before we discovered that it was basically more abundant than we thought and more especially that we could limit its use in batteries. Cobalt lost two-thirds of its value in one year. The fall of bitcoin was even more spectacular, but there was nothing surprising in that as the ‘product’ itself was ambiguous.


         And in March 2019, it may have been a palladium bubble that has erupted. Palladium, surfing the diesel wave, surpassed gold to almost become the most expensive metal in the universe. At $1,300, $1,400, $1,500, even $1,600 an ounce, palladium seemed to have no limits in a market that is projected to be heavily in deficit in 2019. But then, the sun set and in the morning the market turned around. At these prices, platinum became a possible alternative and there was nothing wrong in making profits from it.


         On the derivatives markets, whose main electronic players obey disincarnated algorithms, it is basically reassuring to see that human beings, with their feelings and passions, still play a central role.


         But alongside these bubbles, the current situation is very gloomy for products such as coffee, sugar and rubber.


         On the geopolitical front, the last few weeks have brought nothing decisive. The negotiations between the United States and China drag on even if they are said to be 90% ‘complete’. Attention is focused on Iran, which is now enjoying a special American ‘solicitude’, while a new front has opened with Mexico that could have important consequences in agriculture.


         Lastly, it is worth taking the fever epidemic affecting pig farming in China into account, which is beginning to take on disturbing proportions. Just at a time when economic signs in China were starting to appear slightly more reassuring.


         The 33rd CyclOpe report is almost complete. We are meeting with the friends of CyclOpe on 15 May, 2019 in Paris for the traditional symposium around these “Lost Illusions” – those of the bubbles and all the others.



Philippe Chalmin

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