Declining Global Trade Looks Bad for Commodity Investors

The fall in global trade looks bad for commodity investors over the next couple years. Commodity prices appreciated on rising trade volumes that were thought to be a permanent fixture of the new economic order. That view needs to be reassessed and so do expectations for a quick rebound in commodity prices.

Global trade volumes spiked higher on the paper for goods trading relationship between the U.S. and China and the U.S. and Japan. Both Asian exporting nations sold local currency for U.S. dollars that were recycled into U.S. Treasury bonds. This allowed American households to consumer SUVs and VCRs they could not afford by keeping rates low and credit flowing.

World trade averaged 8.7 percent of GDP from 2004 to 2007; however, it averaged 6.5 percent over the period 1990 to 1999. World trade volumes have fallen from a high of 10.7% in 2004 are likely to fall well below the 5.6% IMF estimate for 2009 according to its World Economic Outlook released last October and now badly out of date.

Consumer spending in the U.S. fell the most in three decades in the third quarter of 2008, according to revised data released yesterday. Savings are on the rise because credit is no longer flowing, and a result trade will fall and stay down for years. Weaker trade means lower commodity prices considering China accounted for the lion’s share of commodity consumption in recent years.

Comments

[yank:]

Flimsy article with nothing to back it up. Try this:

1. Baltic Dry Index bottomed in November and has climbed over 50% since then, reigniting global trade.
2. China announced today they will DOUBLE the amount of their stimulus package further increasing the demand for commodities.
3. Massive monetary stimulus and weak demand for servicing US debt by foreign investors will lead to an eventual collapse in the US dollar. The dollar collapse will spark a furious rally in oil, metals, gold, and softs.

Your article is wild speculation and cannot be supported by facts. Sorry.

Yank

Mar 04 09:05 AM

[Conan the B...:]

Thinking in terms of food not in terms of trade, DBA, DAG, DYY...Trade may not recover to previous extremes, but the Ag sector is being hit by unprecedented coincidental conditions which will ultimately increase Ag prices.

IMHO

Mar 04 11:51 AM