The combination of the two views goes a long way to explaining the state of mining and oil markets which are down, but perhaps not for much longer.

Widdup is known to Australian investors for the “investment clock” invented decades ago by his father Robin when he was working at the once great stockbroking firm of J.B. Were & Son.

The Widdup “clock” is said to currently be at 4 (having crashed at 12), with 4 a time of share swap mergers, leading up to cash takeovers at 5. Boom conditions arrive at 6 – though the time to get from 4 to 6 can take more than a year.

Goehring and Rozencwajg are less well known in Australia but have a solid following in New York where they run a boutique investment advisory name bearing their names with the common abbreviation being G&R (Goehring & Rozencwajg).

A few days before Widdup spoke at the RRS conference in Queensland, G&R published its second quarter review which started with a warning that it was better to buy as a market is close to a bottom than buying after the turn.

“What is the cost of being early”, was the headline on their report, with the answer being “not much” whereas to wait for a clear trend to evolve could be expensive.

In the view of G&R, the broad commodity complex is at the lowest point in 125 years.

“Commodities are as undervalued relative to common equities as they have ever been,” G&R said, a comment based on a comparison of the Dow Jones industrial average with the Goldman Sachs Commodity index (GSCI).

“Over the past 125 years, commodities have reached these points of extreme undervaluation relative to equities on four notable occasions, 1929, 1969, 1999 and most recently, 2020.

“After each of the first three lows, commodities and natural resource equities went on to dramatically outperform the broader market and we suspect history is poised to repeat.”

Widdup was on the same page at RRS, saying that the recent volatility in the technology sector had set the scene for a rotation of funds back into resources which have been heavily sold off.

“The mining industry is probably the least prepared it has ever been for a demand squeeze,” Widdup said. “It’s the least invested that it has been for future supply”.

Like the G&R view based on its ratio of the Dow-v-GSCI, Widdup believes that when a supply squeeze develops money will move quickly back into resources, keen to flee the over-hyped technology sector.

The optimistic views of G&R and Widdup should be seen against another a poor week for Australian investors as they continued to battle a slow growing economy, higher than necessary inflation, and the uncertainty created by a dispute at the highest level of government.

A clash of theories which is pitting the Treasurer, Jim Chalmers, against the Reserve Bank Governor, Michele Bullock, has rattled investor and consumer confidence and will weigh on financial markets until one caves in.

Chalmers believes that government spending is saving the economy from a recession. Bullock believes government spending is driving inflation higher and she’s not prepared to cut official interest rates until inflation falls to an acceptable level.

In effect, Australia has entered a period of an irresistible force butting into the immovable object with the clash made worse because the country is six months away from an election, a time when governments make impossible promises.

BHP, the national resources leader, reflected the apprehensive mood falling by 3.7% over the week but that drop was easily outstripped by two other iron ore miners, Fortescue Metals and Mineral Resources, which plunged over a cliff.

Fortescue fell by 12% to $16.17 (down 46% on its $29.95 high in January). MinRes crashed by 18.7% to $32.58 (down 59% from $79.76 in January.

Both BHP, Fortescue and MinRes reflected the poor outlook for iron ore, which fell by US$10 a tonne this week to US$91/t on the Singapore Exchange.

Declining Chinese demand for steel, which reflects a poor outlook for the Chinese economy, is the root cause of the iron ore crash. The mineral is down 36% since January.

Other commodities are caught in the China crisis which has flummoxed that country’s government and its repeated attempts to stimulate economic growth and consumer confidence.

A rash of Chinese economy downgrades dominated investment bank reports this week with the 5% government forecast fading to 4.8% according to the Bank of America and 4.7% according to TD Securities which was tipping 5.1% just last month.

Lithium followed iron ore with prices continuing to weaken under the pressure of sluggish demand with the spodumene price reported to have dipped as low as US$818 a tonne, dragging local leaders lower including Liontown, which fell 10c to 64c.

Arcadium, which yesterday announced the mothballing of its Mt Cattlin mine in WA, lost another 28c to $3.64 (it was trading at $11.20 at this time last year) but scored an optimistic report from UBS which sees the stock rising to $4.45.

Patriot was also in the good books of UBS earning a rare buy tip and target price of 65c in a week when it fell by 6c to 40c. The bank said it was “looking through the cycle” with Patriot but it’s also worth noting that UBS had previously valued Patriot at $1.

The flipside of the flash of UBS optimism was a warning that African and Chinese lithium is starting to flood a market already full of Australian and South American material, prompting an observation that “the second wave of lithium supply is real and coming.”

Morgan Stanley echoed the UBS warning, telling clients that its global automotive team was forecasting continued weakness in electric vehicle (EV) sales for the next 12-to-18 months.

Gold and copper, which had largely dodged the sell-off which has battered investor confidence, were caught in the widespread sell-down this week which started with a crash in the over-heated technology sector.

Widespread falls by gold stocks included De Grey losing 11c to $1.09 while Bellevue dropped by 13c to $1.16 despite reporting a maiden profit of $75 million.

The gold falls were very much the result of investors losing their nerve because the gold price itself barely moved over the week, slipping a modest US$2 an ounce to US$2498/oz.

Other gold moves included Spartan, down 11c at $1.27. Genesis, down 5c at $2.13, and Northern Star, down 61c at $14.52.

UBS reckons gold will remain strong thanks to investor and central bank buying being driven by “persistent geopolitical risk” which should lead to “higher highs, and higher lows.”

Copper stocks were also weighed down by concerns about the Chinese economy and a negative report on the metal from Goldman Sachs which retreated from earlier optimism.

Rather than trade up to US$15,000 a tonne (US6.80 a pound) the new forecast from Goldman is for a price of US$10,000/t ($US5/lb) – still up roughly US1/lb on latest trades at US$4.02/lb.

Golden Deeps was the pick of the small copper stocks with a spectacular rise of 4.7c (174%) to 7.4c after reporting an 80m intersection of semi-massive sulphides during drilling at its Havilah project in NSW with hand-held XRF “assays” up to 18.5% copper and 34.8% zinc – followed by the company requesting a trading suspension.

Sandfire and 29 Metals, the two local copper favourites, lost ground with 29M down 2c to 34c and Sandfire 39c weaker at $8.19, in line with the latest Goldman Sachs price tip of $8.20.

Rare earth stocks weakened in line with the broader market despite promising signs of a recovery in metal prices. Neodymium, for example, rose by 4.5% over the week to be 12% up over the past month.

Lynas, the local rare earths leader, slipped 33c lower to $6.70 while Hasting eased back by 1c to 28c, the same as Northern Minerals which was down 1c lower at 24c as a fresh controversy developed around Chinese investors defying Australian Government orders to divest.

Other news and market moves of interest this week included:

  • Paladin leading a weaker uranium sector with a fall of $1.01 to $8.79. Boss Energy was down 25c to $2.55.
  • Lunnon Metals was one of the better nickel stocks with a fall of just 1c to 17c after an outbreak of optimism following news of a deal emerging with the Indonesian government over the flooded nickel market.
  • Black Rock was a rare winner in any section of the market with a rise of 1c to 5.5c after announcing a deal with Korea’s big steel group Posco which is interested in Black Rock’s Tanzanian graphite, and
  • Sun Silver was 1c weaker at 62c despite announcing more encouraging exploration news from its Maverick Sprigs project in the U.S. and tax credit from the U.S. government to encourage the production of silver paste for solar panels.