Bonds Must Die for Commodities to Live
Picasso’s Market Lesson
Pablo Picasso once said, “Every act of creation is first an act of destruction.”
That line captures where we are today in markets better than any macro model or Fed speech.
For forty years, bonds were the smoothest trade in the world. Yields topped in 1981, and from that moment until 2020, you could have closed your eyes, bought Treasuries, and made money. Every crisis, every panic, every shock drove yields lower and bond prices higher. It wasn’t just a trade — it was the foundation of modern portfolio theory. Bonds offset equities, smoothed volatility, and gave investors a free lunch.
But creation requires destruction. That forty-year bull market in bonds has been destroyed. What comes next is the act of creation.
The End of Smooth
The first chart makes it clear.
In black: $XLE Energy ETF — the equity proxy for energy stocks.
In green: $TLT Treasury Bond ETF — the poster child of the bond bull market.
TLT above 100.76 would invalidate this idea and put long bonds in a primary uptrend. No where near that yet…
For years, you could lean on TLT to hedge your equity book. But look at the divergence since 2020. Energy ripped higher while bonds collapsed. What was once the world’s safest trade turned into the world’s biggest widow maker.
That destruction matters. Because when the old safe haven dies, the market doesn’t stand still — it shifts its weight somewhere new. And the new home for capital is already visible. Real assets are where creation is happening.
Creation Out of Scarcity
Commodity cycles are nothing new. They are cycles of fear and greed, just like every other market.
Fear at the bottom: Nobody wants them. Prices are at all-time lows. Producers shut down. Nobody digs. Nobody drills.
Greed at the top: Everybody wants them. Supply explodes. OPEC pumps, frackers drill, miners expand. That oversupply kills the cycle.
It’s destruction and creation in motion. At the bottom, destruction of investment creates scarcity. That scarcity lays the foundation for the next bull market.
Think back to 1999 — oil under $20, miners bankrupt, nobody caring about rare earths. That destruction birthed the 2000s supercycle. Think back to 1980 — peak inflation, everyone convinced commodities would only go higher. That greed birthed a twenty-year bear market.
Today looks like one of those moments where destruction has created the conditions for rebirth.
The 40-Year Bond Cycle
The other way to frame this is through the 40-year rhythm of bonds.
1940s: Yields bottom.
1980s: Yields top.
2020: Yields bottom again.
Three turning points. Each one lines up with a shift in the commodity cycle.
1940s bottom in yields → commodity bull in the 50s-70s.
1980s top in yields → two decades of commodity destruction.
2020 bottom in yields → the spark of the next commodity cycle.
That’s not coincidence. Bond cycles define liquidity, and liquidity defines commodities.
Liquidity and the Dollar
Commodities don’t just move on supply and demand. They move on liquidity.
Strong dollar cycles crush them. Weak dollar cycles fuel them. When global liquidity expands, commodities roar. When liquidity dries up, they suffocate.
Look at today’s setup:
Dollar is rolling over.
Global liquidity is expanding again.
The bond trade is gone.
That capital has to flow somewhere. And it’s finding its way into real assets.
Emerging Markets: The New Growth Engine
The second chart tells the other half of the story.
It maps growth rates across the world. And notice where the action is: emerging markets.
Central America, Africa, Asia.
These are the economies growing at 6%–17%. Not Europe. Not the U.S. The rate of change is faster in the places investors have ignored for decades.