The Goehing & Rozencwajg Associates second quarter 2017 letter lays out the bull case for commodities.
Valuations, as compared to US equities, are historically cheap:
GRA believes Indian commodity demand growth will be strong:
However, a new source of demand is about to emerge that few (if any) analysts mention: India. The same research and modelling that correctly predicted the rise of China early last decade now tells us India today is rapidly approaching its “tipping point” of rapidly accelerating commodity consumption. In fact, our research leads us to believe that India today is precisely where China was back in the early part of last decade. (For a further discussion of the China-India parallel, please read the “Global Oil Market” section of this letter.)
And supply growth will disappoint:
Second, our models tell us that supply disappointments loom in many commodities while the conventional consensus opinion believes that supply will continue to surge. The global oil market presents a great example of the discrepancy between consensus belief and reality. For the second year in a row, new conventional oil discoveries have contracted to almost nothing.
Not surprisingly, the firm is very bullish on commodities:
Please study the chart at the top of this essay. At current levels, an investor has an opportunity to profit in commodities that comes only once in an investment lifetime. Everything has been set up, and yet few (if any) have made the investment. Spectacular returns await the few who do.
You can find the full letter here: Goehring & Rozencwajg: Second Quarter 2017 Investor Letter
And more hedge fund investor letters here: Hedge Fund Second Quarter 2017 Investor Letters