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StockInterview talked with David Fuller, a career analyst, writer, lecturer and investor. He is one of the world's most highly regarded independent market commentators, frequently appearing on CNBC or quoted by The Wall Street Journal and other major business-orientated media. David Fuller is a director of Stockcube Research Ltd, where he is Global Strategist and writer of Fullermoney, his unique and highly regarded international investment newsletter. Visit his website: http://www.fullermoney.com/

StockInterview:
Many people are wondering: Is the commodity bull market intact?

David Fuller:
Absolutely, beyond a shadow of a doubt. This is a commodity super cycle, and it will be the biggest commodity super cycle in history to date. This could go on for several more decades – thirty to forty years.


StockInterview:
The longest timeframe we’ve been told about is through the year 2020.

David Fuller:
Commodity cycles can often last longer than that. I have generally stated a ‘generational long process.’ I think this will go on for much longer than would be logical with a commodity super cycle.


StockInterview:
And why would that be?

David Fuller:
There is one main over-riding reason why this is so different from what we saw in the 1970s. I lived through that as a financial analyst so that is still a vivid memory of mine. Then, we had inflation fears. We did have some strong global growth. But the main problem was that we had the political decision to cap production from OPEC. This sparked a lot of interest in commodities, and that was quite a powerful cycle. That’s the one people use as a benchmark. This time it is different because the demand is vastly greater.


StockInterview:
But critics would argue Western countries are more energy efficient.

David Fuller:
Yes, they are. But, look at all the additional gadgets we have that use energy. We use it more efficiently, but we don’t use less of it. We still use an enormous amount of it. The key change – far more important than what I just mentioned – is the conversion of all these previously undeveloped economies. Some, which had been formerly moribund economic systems, have been converted to capitalism. We have China embracing capitalism. We have India embracing capitalism. That’s brought 2.2 billion people into play as very ambitious earners, who aspire to middle class status. If we take Asia , there are 3.5 billion people who aspire to the same middle class lifestyle many of us in the West take for granted. If we look further beyond Asia , this same phenomenon is evident with many other developing countries. We see it in parts of the Middle East with the Dubai city-state as an example.


StockInterview:
Is this, then, a worldwide phenomenon or restricted to Asia and a few other areas?

David Fuller:
Look at Central and South America . Again, we’ve seen a stronger move to the capitalistic economic model, although there are inevitably backlashes there. My guess is those will be temporary. Even if I’m wrong on that point, these economies are major exporters of commodities. Their GDPs are going through the roof relative to what they had previously seen. And that is increasing demand for resources within those countries as infrastructure building takes place. There are 5.5 billion people in the underdeveloped, or developing, world, who are living in countries that are now seeing GDP growth expand quite rapidly.


StockInterview:
What do you see as the main reason for this?

David Fuller:
This process is greatly aided by globalization, which has encouraged the adoption of capitalist economic systems. Part of globalization is the export of technology, which also helps these countries to grow at a far more rapid rate than we have seen in previous decades. This is putting an unbelievable demand on industrial sources, which I think we’ve only just begun to see. Previously, there would be a surge in demand which would last a few years and then drop off very rapidly.


StockInterview:
Won’t China slow down at some point?

David Fuller:
I see articles than tend to be China-centric and mostly bearish. How many times have I heard someone forecasting a China hard landing in the last three or four years? Of course, it hasn’t happened. At some stage, they’ll inevitably get a recession, as all countries do. We should not be thinking in China-centric terms.


StockInterview:
Why not?

David Fuller:
China is important in leading this process among developing nations, but there all the others. It’s far easier to not list the countries now growing very rapidly, far easier to mention the exceptions: Cuba , Cambodia , Burma and North Korea .


StockInterview:
Is it all coming from demand?

David Fuller:
When we look at the supply side, the supply has been very tightly, partly because of the previous 21-year bear market for resources. That meant obsolescence, a loss of manpower. People got older, retired and moved into other professions. There have been major impediments in increasing supply. Supply is increasing and will continue to increase. But, we’re now reaching the stage where it isn’t so easy to find replacement natural resources, aside from the costs which are considerable. If we take oil as an example, the 35 billion barrels of oil we are currently consuming each year, the ability of the world to find replacement oil on that scale is questionable. Certainly we won’t find it from conventional oil.


StockInterview:
Do you see steepened curves as commodity-rich countries will change the economics in those countries?

David Fuller:
You could really say there is an inverse ratio between the price of the metal and the freedom of western companies to actually extract that metal and market it. It’s the same we see with oil. If oil is $20/barrel – Russia , Venezuela – they’re very happy to have Western oil companies come in and produce the stuff. When it gets to $60, $70, nearly $80/barrel, then they’re saying, ‘Wait a minute. Let’s rewrite the contracts, or even nationalize. The important Fullermoney investment theme, for the past four years is: Supply Inelasticity Meets Rising Demand.

StockInterview:
And that leads to higher prices?

David Fuller:
It’s very difficult to increase the supply of these resources sufficiently to meet rising demand. It does mean higher prices, but we must never overlook the fact that markets are inherently volatile. So, I’m not talking about exponential trends. When we get a steepening rate of ascent, this becomes unsustainable and leads to a fairly significant correction. It will be a very powerful, but erratic, bull market just like any other bull market. To define that more precisely, it will be punctuated over different time spans, as we’ve already seen, with medium-term corrections. I would define a medium-term correction as a reaction that lasts for at least a few months. They sometimes last for a year or two, but very seldom more than three years. Then, the primary bull market reasserts itself once again. We have seen a series of medium-term corrections in the resources sector, most of these starting around the April-May period. Now, they’re picking up again, with the exception of oil. But, that’s not going to be long, I feel, before we see that picking up again.


StockInterview:
But uranium has not corrected at all?

David Fuller:
It doesn’t have a futures market. That’s the big factor. The price is certainly rising, but with a futures market, you get the big leverage coming in. You get hedge funds rushing in and plenty of other speculators. You get them buying, and they’re short-term players. The absence of a futures market and the constraints on owning uranium metal really restrict that. As we’ve said all along, it’s been a Fullermoney premise that uranium was the best of the energy bull stories by far. That’s an obvious point, particularly with all the concern over carbon emissions.

StockInterview:
How do you see uranium now that its price has soared so high in such a short number of years?

David Fuller:
In terms of long-term demand, it can only rise and rise enormously. I don’t see any other solution to the energy problem, let alone the clean energy problem, other than nuclear. Any elasticity meets rising demand. There is very little incentive for any major mining company to increase the production of uranium because they would be locked-in, depending on the contract. Some perhaps at $20, or possibly even worse. Anybody who really knows understands the resource in the ground is infinitely more valuable. Is China going to quibble over the cost of uranium? Are the French? I doubt it very much. This has been, still is, and will remain by far, in my view, the most bullish of the energy stories.