Wall Street didn’t see it coming. But it fits in nicely with the historic convergence of long-term cycles we see on the immediate horizon.
Always bear in mind that this Supercycle has two poles – one negative, one positive.
On the negative side is fear. Not irrational fear, mind you. But rather the fear that stems from real, on-the-ground conflict, economic collapses and, ultimately, the Armageddon of unpayable debts. This is the fear that’s driving a tsunami of flight capital to the safest safe haven on the planet — the United States. This is the fear that’s growing daily in intensity.
On the positive side are all the investments that benefit from the global money tsunami. And paramount among them are American companies attracting tremendous amounts of capital thanks to one unique characteristic: innovation.
Here’s where it all comes together: According to an Austrian-born economist who moved to America before World War II, innovation itself is a great cycle.
That economist is Joseph Alois Schumpeter. He did a lot of work with waves and cycles. And his model combines the cycles proposed by the same four great thinkers we have been telling you about:
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Kondratieff and his 54-year cycle.
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Kuznets and his 18-year cycle.
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Juglar and his 9-year cycle.
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Kitchin and his 4-year cycle.
When these cycles combine into a composite wave form, you not only get the great convergence we’ve been warning you about. You also get what Schumpeter called the “Cycle of Innovation and Entrepreneurship.”
As you can see from this diagram, the fifth wave — or the cycle for digital network software and new media — is ending.
What cycle begins after that? The sequence starts all over again, and we circle back to the beginning and find it at the left side of the chart. Water … power … textiles … iron.
And boy, are we seeing a cycle of innovation in power, driven by an invention that is totally changing how we live and work. It can change society and economies.
It could potentially change the world.
Specifically, we are seeing a supercycle in energy metals, powered by the electric vehicle megatrend.
We saw this kind of change when internal combustion engine (ICE) vehicles replaced horse-and-buggy transport at the beginning of the 20th century.
Now, the “ICE Age” is ending. The Internal Combustion Engine is on its way out. Electric Vehicles (EVs) are on their way in.
Like any big change, this transition won’t be immediate. It will take many years. But the seeds of future profits are being planted right now.
Tiny companies that most investors have never heard of will grow larger along with EV use. Or, they’ll be bought out by much larger companies, at potentially huge profits to early investors.
EVs don’t run on gasoline. They run on batteries. Lithium-ion batteries. And lithium is a metal.
But here’s what many people don’t know …
Lithium is only a small part of a lithium-ion battery. Other metals in a li-on battery can include nickel, aluminum, cobalt, zinc and manganese.
Graphite, a non-metal, is also very important in li-ion batteries. Copper isn’t used in the batteries. But electric cars have three times as much copper wiring as ICE-powered cars.
Source: Bloomberg
Unfortunately for investors, not all these metals and materials trade outside the futures markets. But of those that do trade on the stock exchanges, there is one clear leader.
All the energy metals are up. But one is a clear winner.
That winner is cobalt.
Why? Because most lithium-ion batteries are cobalt-based. The system consists of a cobalt oxide positive electrode (cathode) and a graphite carbon in the negative electrode (anode). Lithium ions move back and forth from the negative electrode to the positive electrode.
Other metals are used in varying amounts, depending on what kind of battery it is.
Supply is limited. A whopping 94% of cobalt that’s mined comes as a byproduct of copper and nickel mining. This has been depressed by low copper and nickel prices, though that is changing. Over half (65%) of cobalt supply comes from the Democratic Republic of the Congo (DRC).
Macquarie Bank forecasts “a deficit of 885 metric tons is expected in 2018, with deficits of 3,205 tons and 5,340 tons expected in 2019 and 2020, respectively.” And this is happening as …
Demand Shifts into Overdrive
There have been some remarkable developments in energy metals in just the past few weeks.
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Volkswagen is going to build electric versions of all its models by 2030. To do that, VW will spend $24 billion to roll out the cars and another $60 billion for the batteries.
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Volvo says that, starting in 2019, every new model it releases will run at least in part on electric power. That’s only two years away!
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On Oct. 3, Ford’s new tech-savvy CEO, Bill Ford, is expected to make an announcement about electric vehicles.
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General Motors just set its own timetable to shift to electric cars. By 2025, nearly all models from GM brands in China will offer some kind of electric motor.
That’s to comply with a new policy announced in China. China is the biggest car market in the world. And the government announced it is going to lay out a timetable to shift completely to electric cars.
Just consider the enormity of this shift. Heck, Volkswagen produces as many cars in three days as Tesla produces all year.
Every single electric vehicle will need a li-on battery. And every battery will need cobalt.
So yeah, this electric vehicle megatrend is just getting started. This energy metals supercycle is just starting to shift out of the low gears.
I previously wrote about another energy metal, lithium, at the end of August. In it I recommended the Global X Lithium ETF (NYSE: LIT). If you followed my recommendation and bought LIT, you would have gained 16.6% through Monday. Wow!
There is no cobalt miner ETF — yet. But watch this space. It’s coming. Maybe as energy metals make their next shift higher.
The Global X Lithium ETF (NYSE:LIT) was unchanged in premarket trading Thursday. Year-to-date, LIT has gained 57.59%, versus a 12.90% rise in the benchmark S&P 500 index during the same period.