According to legendary hedge fund manager Stanley Druckenmiller, the commodity party’s over and the decline is just starting.
In his Sohn Investment Conference presentation, Druckenmiller said the 2002-2011 gains for commodities were an anomaly and that the declines of the past couple of years are the norm.
Why? China, he said, which embarked on an unprecedented investment program that caused the spike in commodity prices; in one slide, Druckenmiller suggested that 50% of all global demand from 2002 to 2011 came from china.
But now that level of investment has abated, the downside is underway, he said. What’s worse is that commodities producers have ramped up production expecting high demand to continue. Even if they realize their mistake quickly, said Druckenmiller, production lags mean it will take three to five years before they can adjust output. The supply/demand situation for commodities is “deadly” he added.
Druckenmiller says short Australia on commodity bust. “We think australian dollar will come down and come down hard.”
This implies that the end may also be nigh for the Brazilian Real and Canadian Dollar.