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 In the webinar a couple of weeks ago I promised to give more detail on the potential in platinum. In the commodities universe the discussion is typically about oil and gold, perhaps copper. But the potential is much wider, and that in platinum vividly illustrates this.
Platinum has been in a downtrend, a bear market, for sixteen years. You will recall that such an extreme bear market has also been seen elsewhere, most notably, though not uniquely, Chinese equities. The platinum producers, miners, are down nearly 80%, and sentiment is bleak.
I rely heavily here on marvellous research from the commodity experts Goehring and Rozencwaig (G&R). I am not a car person, but had assumed in my simplistic fashion that my next car must be electric and there was no point in a hybrid. Over to G&R…
65% of platinum production goes into car catalytic converters, which will be obsolete in electronic vehicles (EVs). Not good. Except that this thesis is unravelling:
“Recent disappointments in global EV sales have already begun to chip away at the most aggressive forecasts for EV adoption… analysts are now beginning to consider a more nuanced scenario”.
A scenario in which petrol cars maintain growth “well into the 2030s”. But, G&R point out, there is a much less discussed trend: the rise of the hybrid vehicle, for one reason. The hybrid offers superior energy efficiency to EVs and traditional vehicles powered by fossil fuels, and the hybrids require more PGMs (platinum group metals).
They talk of a “surge in demand” for platinum driven by hybrids, and also driven by new car emissions regulations around the globe which will require a sharp increase in platinum use.
That’s the demand side of the equation. The lack of supply is also very supportive of a revival in price of platinum and the miners thereof. Commodities across a wide range have lacked investment in production for many years, so any increasing demand will not be matched by increasing supply for some time. Plus the valuations of the miners and producers became very cheap (e.g. gold, copper, oil, platinum) because investors were much more excited by tech.
It is no coincidence that when Growth and tech soars, commodities do the opposite. In the Noughties it was the other way around – for those with a memory stretching before the mania which built from 2009, the US was very unexceptional in the Noughties. We can look at why that is so on another occasion, otherwise this will get too long today.
For now, I note that the conditions are in place for The Great Unwind of the Growth and tech bubble-cum-mania. In parallel, investor interest is already returning to platinum, evidenced by ETF flows, though it is early days. The supply/demand imbalance is not a secret, nor the cheapness of platinum miners. The stealth selling of US assets by global institutions coupled with falling interest rates in parts of the world means that cash is looking for new homes, and this trend could persist for a number of years.
The latter tallies with what history informs us to expect – the multi-year Growth bull market ends, the multi-year commodity bull market begins. There have been false starts, notably in 2022, when commodity prices soared on the Russian invasion. But the Trump factor, and drip-drip exit from dollar assets, could be just the catalyst needed by commodities in general and platinum in particular.
G&R note a similar setup in the late 1990s, when platinum stocks were completely overlooked by the investment community. As the tech bubble burst (typical retail funds fell 70-80%), platinum took off, in tandem with commodities more broadly. Between then and the 2008 financial crisis, the major platinum stocks went up by multiples of 30-60. I am not suggesting that these kind of extraordinary gains will be repeated. But once the global investment community gets behind a trend, the upside is considerable, whether platinum and gold from 1999, or Growth from 2009.
First and foremost this analysis is to bring to life the potential of platinum, and the supporting factors, as these are shared across much of the commodities universe. Any individual commodity is very volatile e.g. the gold price is as volatile as the S&P, and gold miners much more so; similarly silver or platinum.
You can get an exposure to the wider potential through a fund such as JPM Natural Resources or, narrowing it down a bit more, BlackRock World Mining IT. If you want exposure to specific commodities through ETFs do remember that the miners of a product, say gold or silver or platinum, might be 3 or 4 times more volatile than the product itself. So take care, and understand the risks. If you are unfamiliar with this area, but are curious, invest a very small amount such that, if you lost 50% overnight, you could shrug your shoulders – the price of learning if you like.
Returning to the macro issues of recent weeks, one of the features of a period such as this is that the dominant power clashes with the upstart and, as a result, there is a lack of global leadership at a time of crisis. Kindleberger had something to say about this, the author of one of my favourite books, “Mania’s Panic’s and Crashes”. In one of his lesser known books, “The World in Depression”, he sets out that the Great Depression was a disaster on such a scale because there was no leading nation to stabilise the global economy. In 1929 Britain had run out of steam and the US was isolationist (ring a bell?). In contrast, in 2008/9 the threat of Great Depression II was averted by the combined action of the US and China.
The lack of leadership in such a global crisis is called “The Kindleberger Gap”. For the gap to be filled it requires that the leading country(ies) believes that intervening to ensure stability is in its own self-interest, hence US and Chinese action in 2008/9.
Trump philosophically does not believe in such intervention. This means that the next global crisis will likely be more extreme because there is that gap in self-interested leadership – no one knows the extent to which the EU and China can intervene, or are willing to do so, to halt a global crisis.
Beyond that potential in platinum and other commodities, it is the valuation of US equities (combined with debt and demographics) which makes financial markets extremely vulnerable. In past teleconferences and blogs we have provided you with many precedents for what happens next, one of which is the Nifty Fifty in the 1970s. Tim Price has just given a new and fascinating dimension to that precedent, Warren Buffet. Over to Tim:
“The danger signs had been visible for quite some time, for those with the eyes to see. As early as October 1967, Warren Buffett was writing to his partners at the Buffett Partnership Ltd., warning that:
“The market environment has changed progressively.. resulting in a sharp diminution in the number of obvious quantitatively based investment bargains available… In my opinion what is resulting is speculation on an increasing scale.”
By November 1967, Buffett was going to some lengths to manage his partners’ expectations... By May 1969, Buffett had had enough. He wrote to advise his partners that he was winding up the partnership for good:
“I just don’t see anything available that gives any reasonable hope of delivering a good year and I have no desire to grope around, hoping to “get lucky” with other people’s money.”
While Buffett was in the process of quietly exiting the stock market, other investors were piling into the shares of businesses that would become notorious as the ‘Nifty Fifty’ – those ‘glamour’ stocks, like IBM, Gillette, Coca-Cola and Xerox, that seemed to offer such stability (virtually none of them had cut their dividends since World War 2) combined with such superior prospects for growth (including international expansion) that they could justify practically any valuation afforded them by the marketplace, and defy any apparent weakness in the global economy.
The ‘Nifty Fifty’ came to be known as ‘one decision’ stocks: the only decision investors had to make was just how many of them to buy. By 1972, the S&P 500 index was trading at a punchy 19 times earnings. The ‘Nifty Fifty’, on the other hand, stood at a 42 times earnings.
And then the market collapsed triggered by conflict in the Near East, soaring oil price, and US political turmoil (Watergate). Sound familiar. The bear market ended 9 years later.
In the words of a Forbes columnist, the Nifty Fifty “were taken out and shot, one by one.”
From its high, Xerox stock fell by 71%. Avon Products fell by 86%. Polaroid’s decline was the most sickening: 91%.
Forbes issued a post mortem for these former wonder stocks:
“What held the Nifty Fifty up? The same thing that held up tulip-bulb prices in long-ago Holland – popular delusions and the madness of crowds. The delusion was that these companies were so good it didn’t matter what you paid for them; their inexorable growth would bail you out.”
The bizarre thing about the investment markets is that if you simply hang around long enough, you get to see insanity repeat itself. Human nature never really changes. It took roughly a generation for the cult of the Nifty Fifty to repeat itself with the first wave of dot-bombs in 1999.”
Back to me, thank you Tim. Here we are in 2025, and the insanity repeats itself again. There is nothing new when investing. You need to decide if you are like Warren Buffett, and content to stand to one side until sanity return. Or whether you wish to stay in the game, accepting the insanity, but reckoning you can get out with profits intact, before the collapse.
Last but not least, it is a funny old world when the US stock market (and FTSE 100) is heading towards new highs as gold is doing the self-same thing. Hmmm. Time to unravel that next week.
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