Commodities manager is still waiting for talk to turn into action
In seeking to transform Canada’s economy and trade relationships the Carney Government has introduced a wide array of initiatives aimed at getting this country’s vast resource wealth out of the ground and into global markets. New tax incentives and deregulation for capital investment in the budget is the latest in a slew of initiatives aimed at increasing commodity production. The new Major Projects Office, too, has earmarked copper mines and LNG processing facilities as matters of national importance. Unearthing growth through commodities now appears to be a priority for this government, but Tim Pickering is still waiting before he celebrates.
Pickering is Founder, President, and CIO of Auspice Capital Advisors, a commodity asset manager. He highlighted the degrees to which stated policy by the Carney government should give commodity investors reasons for optimism, and the degree of caution they should continue to apply. Pickering pointed out what he’ll be watching for to assess whether policy will result in action and how advisors can approach the commodities space while this government seeks to unlock Canadian resources.
“I live in a world of action where talk is cheap and I have trouble believing that the government is going to follow through on all the things they talk about,” Pickering says. “At the same time, I am cautiously optimistic. Budget initiatives for critical middle minerals and commodities could create opportunities, but the budget could also create some potential risk for investors in commodities as well.”
Pickering highlights a degree of ‘flavour of the month’ in the government’s commodities rhetoric. He notes that an emphasis has been placed on critical minerals and rare earths’, which reflects some talk out of the US government from earlier in the year. His concern is that this government may place an undue focus on those commodities and neglect Canada’s traditional strengths: oil, gas, iron ore, uranium, potash, lumber, canola, and grain. Those traditional commodities, he says, have earned a bad reputation in Canada despite enjoying strong demand. He fears that chasing the ‘shiny object’ of critical minerals might see those core commodities neglected further.
While Pickering is happy to see new tax credits, incentives, and public-private partnerships offered as part of the government’s drive to create more resource wealth, he says that challenges could emerge if government, rather than markets, determine where investment should flow. Given the number of cases that could be made for any particular commodity, Pickering argues that if government plays too much of a role in decision-making it could result in less positive outcomes.
In watching to assess the quality of this policy push, Pickering says he’s looking for activity, not language.
“Are we seeing deals getting done? Is xyz mining company going to expand or grow that opportunity in Canada? If not, what difference does any of this even make,” Pickering says. “We might be offering tax credits, but you need revenues and expenses for those to apply. I want to see activity out of this, and if we start hearing that these companies are coming back and looking at Canada, that will be the signal.”
For investors looking at the budget for commodity price guidance, Pickering stresses the global nature of these markets. While Canada plays a massive role as a producer of oil, gas, and uranium among other key commodities, he notes that the timeframe for extraction projects is long and that realizing opportunity can take a great deal of time. While Canada’s play to build wealth with commodities may be long-term, he notes that global demand for commodities continues to grow. The only risk he sees to the broad commodities cycle is a global slowdown and stagflation.
Because stagflation is a death knell for governments, Pickering notes that policymakers appear more willing to accept a higher resting rate of inflation so long as it comes with real GDP growth. That environment, he argues, is favourable for commodities as they add true diversification in portfolios, especially at a time when stocks and bonds appear more positively correlated. He notes that many Canadian pensions have already begun taking a similar view, adding to their commodities exposure. As these players add to their commodities portfolios, and Canada’s government enacts policy aimed to increase production, Pickering believes there’s a strong narrative that advisors can point their clients to.
“Now we see the government waking up to the opportunity in Canada and showing us this asset class shouldn't be just ignored,” Pickering says. “They're not talking about stocks like resource equity or resource debt. They're talking about the actual production of these Commodities and exposure to these Commodities. I think that opens the conversation.”
