Core Insights - Goldman Sachs predicts the world is entering a "Commodity Control Cycle" due to stagnation in globalization and inward-looking policies by nations [1][7] - The traditional stock-bond portfolio is deemed vulnerable in the face of two types of stagflation risks: erosion of institutional credibility and supply shocks [2][6] Commodity Control Cycle - The cycle consists of four phases: insulation, expansion, concentration, and leverage [3][4] - **Insulation**: Governments implement tariffs, subsidies, and strategic reserves to protect domestic supply chains [3] - **Expansion**: Once domestic supply is secured, surplus production is used for exports, with OPEC+ and U.S. LNG exports gaining market share [3] - **Concentration**: High-cost producers exit the market, leading to supply concentration among a few dominant players [3] - **Leverage**: Dominant producers can use export restrictions as geopolitical and economic leverage, increasing market disruption risks [3][5] Geopolitical Risks - The concentration of commodity supply heightens geopolitical risks, as seen in historical cases like the 1973 oil embargo and Russia's gas supply cuts to Europe [5] - Key maritime chokepoints exacerbate supply chain vulnerabilities, with diminishing naval protection increasing geopolitical risks for commodity flows [5] Strategic Value of Commodities - The report emphasizes the strategic value of commodities in investment portfolios, particularly in a fragmented and supply-chain-weakening world [6][7] - Not all commodities provide the same hedging effectiveness, which depends on their weight in the inflation basket and the likelihood of supply disruptions [6][9] Conclusion - As the world transitions into a "Commodity Control Cycle," incorporating a diverse range of commodities into investment portfolios is a strategic decision to mitigate future inflation and geopolitical risks [7]