Photo: CFR, YouTube
The big news in the world of Wall Street calls today was Citi’s Edward Morse calling the end of the commodity Super-Cycle. The argument, basically, is that the age of investment-led Chinese growth is over (giving the way to household consumption-led growth) and that this shift would have a profound negative impact on the rate of demand growth in all sorts of industrial commodities. Add in booming supply in more areas (E.G. Iraq and US oil) and you have the case for the end of the great commodity bull run. And really this is huge given how long the commodity bull story has been a thing.So should you listen to Morse?
Well beyond the logic of his call (which is spelled out in a note that’s over 100 pages) he also has one well-timed call to his name
Take a time machine back to 2008, back when he was at Lehman, and oil was going into the nosebleeds.
Lehman’s lonely oil contrarian, Ed Morse, says the price bubble will burst before you hear Auld Lang Syne
When will oil’s visit to the stratosphere end? Almost to a man (and woman), the oil watchers of Wall Street say the question cannot be answered, even though the price per barrel slid more than $10 on July 15 and 16. There are just too many factors propping up crude even to contemplate a dramatic decline.
But Edward L. Morse, Lehman Brothers’ (LEH) chief energy economist, says the oil bubble (he dubs it Oil Dot-com) will burst by New Year’s. Not only that, he predicts a plunge to about $93 a barrel. Pretty audacious as prognostications go, at a time when Goldman Sachs (GS) foresees $200 a barrel. To that Morse just replies that he’s the one talking sense. “We are trying to keep our heads in a wild market,” he says.
Some of his reasoning sounded familiar (a negative take on Chinese demand, etc.) but his timing was definitely spot on, and if anything he was way too optimistic.
So it will be interesting to see if this plays out again. On the one hand, he’s made a very similarly themed call before. On the other hand, he made a good comparison at a good time.
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