The renewed interest in mining equities cannot be understood in isolation. It sits squarely within the economics of late stage empire.
As outlined in The Economics of Late-Stage Empire, advanced economies tend to converge on a familiar pattern:
• High debt
• Financialisation over production
• Rising inequality
• Unmanaged immigration, falling real wagws, increasing social tension
• And, eventually, currency debasement, as a political release valve.
In such regimes, financial assets come to increasingly represent claims on a weakening currency, while physical assets retain real utility and pricing power.
This is precisely the environment in which commodities, and by extension mining equities, begin to reassert strategic importance.
Reference
livingintheair.org/2026/01/the-economics-of-late-stage-empire.html
Glossary Items
Late-stage empire – a mature economic phase characterised by high debt, slowing productivity and reliance on monetary expansion to maintain stability.
Currency Debasement - is the loss of a currency’s purchasing power ie its loss of real value. This happens in times of monetary expansion, when the supply of money expands faster than the supply of goods and services.
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2. Quadrant C Conditions And Why Mining Re-Prices
The current macro backdrop aligns closely with Quadrant C as defined in Portfolio Construction for Quadrant C.
Quadrant C regime combines low growth with structurally sticky inflation, fiscal dominance and constrained monetary policy.
In such conditions:
• Real interest rates are politically capped
• Liquidity is injected unevenly
• Financial repression favours debtors over savers
• Capital searches for assets with embedded scarcity
Mining equities benefit because they sit upstream of real assets that cannot be printed.
Their revenues reprice with nominal inflation, while replacement costs rise faster than accounting earnings.
This is not a classic growth trade.
It is a balance-sheet and scarcity trade.
Reference
livingintheair.org/2026/01/portfolio-construction-for-quadrant-c.html
Glossary:
Glossary Items
Quadrant C – a stagflationary regime marked by weak growth, persistent inflation and policy constraints
Fiscal Dominance - when government borrowing needs dictate monetary policy. Central banks prioritise funding the state over the usual dual mandate: employment and inflation.
Constrained Monetary Policy - a situation where interest rates cannot rise freely without triggering financial or political stress. Policy choices are limited by debt levels and system fragility.
Financial Repression - use of policy tools to keep interest rates below inflation aka negative real rates. It transfers wealth from savers to borrowers and reduces the real value of debt.
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3. AI, Electrification And The Demand Shock
What differentiates the current cycle from previous commodity upswings is the nature of demand.
Artificial intelligence, data centres, electrification and grid expansion, EVs and solar panels - these are not discretionary consumption trends, they are capital-intensive system upgrades.
Each requires disproportionate volumes of copper, aluminium, nickel and specialty metals. Solar panels need silver. Crucially, this demand is relatively inelastic ie insensitive to short-term economic slowdowns.
As highlighted in the Bloomberg analysis, investors are increasingly framing this as a structural demand shock rather than a cyclical rebound.
In late-stage empires, such demand shocks interact with constrained supply to produce prolonged real-asset repricing.
Reference
finance.yahoo.com/news/mining-stocks-cusp-supercycle-ai-090000230.html
Glossary Items
Structural demand – demand driven by long-term technological or infrastructural change rather than the business cycle
Inelastic Demand – demand that changes little in response to price or economic fluctuations.
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4. Supply Constraints And Imperial Friction
Late-stage systems also struggle to expand supply efficiently.
Mining projects face:
• Long development timelines
• Environmental and political resistance
• Rising capital costs
• Geopolitical fragmentation of supply chains
From an empire-economics perspective, this reflects declining coordination capacity and rising internal friction. Supply cannot respond elastically to higher prices.
That asymmetry is central to the supercycle thesis.
It also explains the renewed focus on mergers, consolidation and resource nationalism across mining jurisdictions.
Glossary Items
Supply inelasticity – a condition where production cannot increase quickly in response to higher prices.
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5. Portfolio Implications In Quadrant C
Within a Quadrant C framework, mining equities occupy a specific role:
• They are not growth assets.
• They are not defensive bonds.
• They are inflation-linked operating businesses tied to physical scarcity.
As argued in Portfolio Construction for Quadrant C, the objective is not maximising nominal returns but preserving real purchasing power while managing drawdowns.
Mining equities complement:
• Physical commodities
• Energy exposure
• Inflation-resilient infrastructure
• Select real-asset producers
They also offer operational leverage to inflation without the storage and liquidity constraints of physical assets.
Glossary Items
Real Return – the return on an investment after adjusting for inflation.
Operational Leverage to Inflation - means a business’s profits rise faster than inflation because revenues reprice with higher prices while many costs remain fixed or adjust more slowly
Nominal Returns - investment returns measured in money terms, without adjusting for inflation
Inflation-Resilient Infrastructure - refers to assets whose revenues can be indexed or repriced with inflation, helping preserve real value. Examples include regulated utilities with inflation-linked tariffs and toll roads with price escalation clauses.
Real Assets - physical or tangible assets with intrinsic value, such as commodities, property or infrastructure, whose prices tend to adjust with inflation. Financial Assets - paper or digital claims, such as shares, bonds or cash, whose value depends on future cash flows as denominated in (fiat) currency.
Credit and Money – J. P. Morgan 1928 statement that “gold is money, everything else is credit” meant that fiat currency and bank money are ultimately promises, not money in the sense that real money has intrinsic value. He was highlighting that modern "fiat" money is created by banks through credit expansion, it is just numbers on a screen; while only real hard money will ultimately settle obligations, without reliance on trust in the issuer - there is no counterparty risk because there is no counterparty.
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6. Risks, Cycles And Discipline
No supercycle is linear of course - commodity markets overshoot, capital floods in late... and policy intervention eventually follows.
Late-stage empires are especially prone to volatility, policy error and narrative flux.
The appropriate stance is therefore best methodic and strategy-driven, not euphoric emotion-driven. We need a strategy for this QC Regime.
Mining equities should be accumulated as part of a regime-aware portfolio, sized with risk management in mind, and periodically rebalanced as prices diverge from fundamentals.
Glossary Items:
Strategy - the disciplined use of the resources one has, or can acquire, to achieve defined goals under uncertainty. Strategies set direction and trade-offs, and are executed through policies, programmes of work and their projects, measurable performance indicators (KPIs), targets, and regular, say monthly, reviews of progress
Rebalancing - adjusting portfolio weights to manage risk and lock in gains
Late-stage financial systems - mature economic systems characterised by high debt, financialisation, and reliance on monetary expansion to maintain stability, often at the expense of real productive growth
Financialisation - the process by which economic activity becomes increasingly driven by financial markets, debt, and asset prices rather than by production, investment in inputs to real-world production systems and processes, and real economic output.
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7. Closing Synthesis
Before moving on to portfolio construction - Section 8 - let's summarise where we are.
Mining stocks are not rising simply because of AI hype. No. They are repricing because late-stage financial systems tend to undervalue physical scarcity for long periods - basically while investment goes to financial assets. This also means under-investment in production facilities for hard assets. As confidence in (fiat) money and policy, monetary and fiscal, gradually erodes, capital shifts back towards assets that are finite, tangible, essential to the real economy and by this time suffering from scarcity.
• AI and electrification are catalysts.
• Quadrant C is the regime.
• Late-stage empire is the backdrop.
Seen this way, the renewed interest in mining equities is not "speculative exuberance", it is rational capital rotation.
References
livingintheair.org/2026/01/the-economics-of-late-stage-empire.html
livingintheair.org/2026/01/portfolio-construction-for-quadrant-c.html
finance.yahoo.com/news/mining-stocks-cusp-supercycle-ai-090000230.html
Glossary Items
Capital rotation – the systematic movement of investment capital between asset classes as macro regimes evolve.
Macro Regime - the prevailing economic environment defined by the interaction of growth, inflation, policy and liquidity. Broadly the four regimes within the economic cycle: growth with low inflation, growth with rising inflation, stagnation with inflation, and contraction with disinflation or deflation. We are currently, as at Jan26, late stage quadrant C.
8. Capital Allocation In Quadrant C. Re-Stating The Operating Logic
We now move from narrative to portfolio mechanics.
The macro framework described above provides the operating logic for the construction, maintenance and review a Quadrant C portfolio. Maintenance includes the idea of tactical rebalancing to keep the portfolio in line with fundamentals and allocation percentages, as well as keeping an eye on the indicators that indicate it is time to exit as we glide from C to another regime.
In Portfolio Construction for Quadrant C, the capital allocation framework was deliberately conservative, regime-aware, and risk-managed. The purpose was not to forecast markets, but to remain solvent and adaptive under conditions of monetary debasement and weak trend growth.
The agreed principles were:
• Favour assets with embedded scarcity
• Minimise dependence on long-duration financial claims
• Maintain liquidity for tactical rebalancing
• Accept volatility in exchange for real purchasing-power protection
This allocation logic remains fully intact in the current post.
Reference
livingintheair.org/2026/01/portfolio-construction-for-quadrant-c.html
Glossary Items
Capital Allocation – the deliberate distribution of investable capital across asset classes according to regime conditions and risk objectives
Drawdown - the decline in an asset’s value from its previous peak to a subsequent low. It measures the size of a loss during a downturn before recovery occurs
Maintain Liquidity for Tactical Rebalancing - holding a portion of the portfolio in readily available cash before any drawdowns occur so that assets can be added to during rhe drawdown, without being forced to sell long-term holdings.
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9. Rechecking The ETF Selections. What Still Stands
We will pause here and re-validate the ETF selections.
In the original post, the ETF basket was designed to express real asset exposure without leverage, and with sufficient liquidity to rebalance as conditions evolve.
The core exposures we agreed were:
• Broad global equities for optionality, not growth
• Commodity producers and miners for inflation linkage
• Energy and industrial metals as scarcity plays
• Gold as strategic monetary insurance
The goal and logic is regime defence.
Nothing in the AI or mining supercycle narrative invalidates those selections. If anything, the emergence of AI-driven demand reinforces the upstream metals exposure already embedded in the framework.
But crucially, this is not at all an “AI portfolio”.
It was a Quadrant C survival portfolio that happens to benefit from AI-related capital expenditure.
Glossary Items
Optionality and Liquidity – maintaining exposure to upside scenarios without relying on them. Holding readily accessible cash or flexible assets that preserve the ability to act as conditions change. In practice, this means an investor has cash enough to rebalance into drawdown opportunities, meet obligations without forced selling, respond quickly to changing market conditions while reducing overall portfolio stress... Ie lowering the risk of forced decisions during market volatility by maintaining sufficient liquidity and diversification, without abandoning the underlying strategy.
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10. The Exit Question. When Does This Allocation Begin To Unwind?
This is the most important section.
In Portfolio Construction for Quadrant C, the allocation was explicitly conditional, not permanent. Importantly, we've got our strategy for this quadrant, and withdrawal or rotation is always linked to regime change, ie indicators signal that we should start to prepare for the when the economy is leaving quadrant C, and price action alone is not a sufficient guide.
The primary condition identified was:
• “A genuine productivity-led growth cycle.”
This was intentionally framed as rare and difficult to achieve - it means real, economy-wide, productivity gains.
Glossary Items
Productivity – output per unit of labour or capital; the ultimate driver of sustainable real growth.
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11. What Would A Genuine Productivity-Led Cycle Look Like?
To evaluate whether AI qualifies, we must return to first principles.
A genuine productivity cycle would show:
• Sustained real GDP growth above debt growth
• Broad wage growth without inflation acceleration
• Falling unit labour costs
• Rising real interest rates without financial stress
• Expanding supply capacity across energy, housing and infrastructure
Importantly, productivity gains must lower costs, not merely raise profits.
If AI simply increases returns to capital while labour, energy and housing remain constrained, the regime does not change.
It intensifies inequality and inflationary pressure.
Under those conditions, Quadrant C persists.
AI, at present, looks more like a capital deepening shock than a productivity revolution.
Glossary: Capital deepening – increasing capital per worker without proportional gains in overall efficiency.
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12. Practical Triggers For Reducing This Allocation
The original post was explicit: withdrawal from the Quadrant C allocation would begin only if multiple signals aligned.
Key triggers include:
• Sustained disinflation without recession
• Rising real yields without central bank intervention
• Fiscal discipline returning structurally, not cyclically
• Falling commodity prices due to supply expansion, not demand collapse
• Clear evidence that technology is reducing, not amplifying, scarcity
Absent these, reducing exposure to real assets and miners would be premature.
Price corrections alone are not exit signals.
They are rebalancing opportunities.
Glossary Items
Disinflation – a slowdown in the rate of inflation, distinct from deflation.
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13. Rebalancing Versus Regime Exit
A critical distinction was made in the original framework between exit and rebalancing... Rebalancing is not exit.
Rebalancing its setting target percentage allocations in the portfolio for each security and then as these allocations drift higher or lower, periodically they will be rebalanced back to target. In other words, the successful securities will be partially sold and the capital raised used to buy the failing securities i.e sell high, buy low.
Selling partial positions after sharp price increases to rebuild cash buffers is consistent with our Quadrant C discipline.
Abandoning the allocation altogether requires regime confirmation.
This distinction protects the investor from:
• Narrative whiplash
• Premature rotation into financial assets
• Overconfidence in technological salvation
In late-stage systems, false dawns are common!
Glossary: Regime shift – a durable change in macroeconomic structure, not a cyclical fluctuation.
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14. Interim Conclusion. Discipline Over Optimism
AI may yet deliver a genuine productivity boom. And if it does, the portfolio will adapt.
But until productivity is visible in wages, prices, supply elasticity and real rates, the burden of proof remains high.
The Quadrant C allocation is not pessimistic, it is empirically grounded.
Mining equities, energy, and real assets are not bets on catastrophe - they are rational positioning in a system where scarcity still dominates abundance.
Reference
livingintheair.org/2026/01/portfolio-construction-for-quadrant-c.html
Glossary Items
Scarcity – a condition where demand persistently exceeds supply, supporting real asset pricing.
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