Get Out of Commodities - Barron's
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Barron's cover story notes commodity bull markets are being fuelled by retail speculators, while seasoned commercial players are betting on a downturn.
Here's the gist of Barron's short case:
The CFTC (Commodity Futures Trading Commission), due to the relatively limited capacity of commodity markets and the ease with which they can be moved, puts limits on the sizes of speculators positions. However, commodity ETFs, pools and mutual funds sidestep this limitation through complex deals that have them buying and selling off-market through a conduit called the International Swaps and Derivatives Association [ISDA]. The CFTC is aware of the situation, and is gathering on Apr. 22 "to hear firsthand from participants to ensure that the exchanges are functioning properly." An idea of just how deep-rooted the problem is: ETFs, mutual funds and commodity pools seem to account for a full 60% of all bullish commodity positions.
Commodity bull Jim Rogers notes that there are about 70,000 mutual funds in the world, and only about 50 that invest in commodities. He thinks the speculative bubble has a few years to go. But looking at the 'smart money' -- farmers and others who actually trade in and use the physical commodities -- tells a different story. Net commercial shorts are 30% higher than a previous record.
Factors that could burst the bubble:
- Even the slightest hint of a China slowdown (much of the bullish outlook is due to the perception of an 'insatiable' China).
- A U.S. recession.
- A stronger dollar (commodities are dollar-denominated).
- A stronger stock market, leading people to put money back into stocks. (Or, conversely, a weaker market that sees traders liquidating commodity longs to meet margin calls. Barron's doesn't mention this, but it got some mileage when gold and oil dived suddenly a couple weeks ago.)
- The CFTC changing its exemption of position limits on index funds.
Société Générale analyst Albert Edwards says the commodity bubble is "nonsense on stilts," and is sure prices will unravel before year-end. Barron's says prices could drop 30% as speculators retreat.
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Here's what some Seeking Alpha contributors have recently said on the topic:
- Stephen Frankola agrees with Barron's. He says the commodity bubble needs to burst. While it's impossible to say when, rationality will return, and shorts will be the winners.
- Andy Abraham calls today's market a dot-commodity bubble. "We all know that investors love to chase returns," he writes. "Many of these charts look uncomfortably familiar, like housing prices in California a few years ago and the technology-stock heavy Nasdaq composite index in the late 1990s. We know those bubbles ended badly for investors chasing returns. Remember the dot-com bubble? Don't get caught up in the dot-commodity bubble."
- Meanwhile, Tim Iacono ridicules commodity shorts who are ready to celebrate every time the markets seem ready to turn. He likens the Fed talking the markets down to British police, who, without firearms, stop and yell at escaping criminals, "STOP! Or I'll yell STOP again!"
- Bob Zieger says high commodity prices, particularly oil and byproducts, are here to stay.
- Finally, Roger Nusbaum says he's always believed in commodity exposure, provided it's moderate. He says some exposure adds "a little zig to my stock market zag," but stops short of calling it a "bet on commodities." He doesn't give an exact formula for exposure, but says he's not comfortable with anything close to the 20% often batted around.
Iacono also has a superb post that analyses the various commodity ETFs and their holdings. Big funds include DBA, SLV, DBC, USO, GLD and IAU.
This article has 68 comments:
How many times is Barron's going to tell us that $5/barrel oil is just around the corner? In your dreams!!!!
Metals? Precious Metals? Grains/Food? Oil?
BTW, IMHO, Oil demand & prices should stay high, until the hydrogen cell becomes very popular and is available at low cost for consumer applications like cars.
my risk tolerance is very low Any advice would be very appreciative
Are we dead? I'll come visit you in the Astral plane! lol
L. Johnson
The commercials can be short futures because they're hedging actual commodities or currencies. The hedges never are perfect, but they're basically protected. Speculators may feel protected by being in complex spreads, but spreads can go wrong real fast. Ask Bear Sterns.
The ETFs and mutual funds in futures had better have good lawyers, because if they don't play these markets successfully, their defense attorneys will, win or lose.
Wish they could be more specific and provide details where there are hidden supplies of oil, grain, fertilizer, iron ore, etc., that will suddenly be made available.
chistletoe - that's $5/bbl (for 2-gallon barrel), get with the program
User 167026 - DO NOT put all your nest eggs in one asset basket (and cash, or FDIC-insured MM, is a position)
L. Johnson
I'm expecting drops in demand more than increases in supply, which don't seem likely in most markets over the next 12 months.
Bulls tout growth in China and India, but even growing economies go through corrections and recessions. Consumption can boom only so long before consumers over extend themselves and pull back, often for a few years before growth resumes.
What's hard to calculate in these markets are the future of the dollar and how speculators in ETFs and hedge funds will react to the inevitable swings in demand and the unexpected. We have a lot of traders playing with other people's money, not their own, and they are more likely to take big risks than people who are trading for themselves.
In many ways, the ETFs are the public, the dumb money. But in other ways, ETFs are like commercials in that they have sophisticated computer models and traders. The question is, are they alumni of Cargill and ADM or of Bear Sterns? I kinda doubt the former and fear the latter.
de
Look for a major jump in commodity prices in conjunction with a continued dive in the US currency. Barron's Covers are notorious, over time, for being incorrect in their assesment of a change in sentiment.
If you have a Bear on the cover, the Bear market of the time is almost over, ditto a Bull. Nothing has changed, Barrons is a contrary indicator at best.
Bullish/bearish analysis of favorable vs unfavorable stories on various companies during the year are never tabulated to see if the analysis was correct.
Because the same people continue to work at Barrons year after year translates into No One Else wants them. Just because a stopped watch is correct every 24 hours, doesn't mean it is useful.
I personally like Barrons. I like the way they put together their Market statistics. I like having the facts about the previous week summarized in a cohesive manner. Abbleson can make it on his own but many times he is years early. I have read his commentaries for over 30 years. His insights are really informative but he is not always right.
What happens to commodity prices when the US accelerates out of a recession? Do they go down because of strenghtening US currency or up regardless because of an increase in the usage of dwindling supplies?
L. Johnson
- Their productivity can increase very fast;
- They are too dependent on weather, which is completely unpredictable;
- DBA has already exceeded position limit imposed by CFTC.
And the cost of continuing to do what we are doing is ruining our economy. Switching to alternatives will end the estimated $800 billion in annuall hidden costs of oil. Instead of giving the oil companies and estimated $80 billion annually in tax credits and subsidies, we could be investing in something with a future. And solar and wind and other clean energies won't cause wars in the mideast costing trillions of dollars and thousands of GI lives.
I you were paying for the hidden costs of oil at the gas pump, the price would be approaching $12/gallon.
The Greenies are way smarter than you are. They aren't burying their heads in the sand.
Nuclear power has many problems and is also heavily subsidized, certainly more so than alternatives.
"Federal subsidies to new nuclear power plants are likely between 4 and 8 cents per kWh (levelized), and could well be the determining factor driving the construction of new nuclear power plants. $9 billion per year in the U.S.
2006 from www.earthtrack.net/ear...
Is nuclear safe from terrorist attacks? Argonne National Lab doesn't think so.
"A report from Argonne National Lab concluded that aircraft crashes could subject nuclear plants to numerous multiple failures that could lead to "total meltdown" even without direct damage to the containment structure."
And nukes don't make us energy independent.
"We import 65 percent of our oil, but 90 percent of our uranium. At a time when state and federal leadership has set goals for "energy independence," reliance on nuclear power would mean depending on technology that requires fuel imported from overseas. Moreover, according to MIT scientists, there is less global supply of enriched uranium than commonly projected and the price has increased more than tenfold over the last five years."
"The United States and Russia signed a deal that will boost Russian uranium imports to supply the U.S. nuclear industry, the Commerce Department said Friday…."
The new agreement permits Russia to supply 20 percent of US reactor fuel until 2020 and to supply the fuel for new reactors quota-free."
So if, under a President McCain, we build a bunch of new nuclear reactors -- they could be fueled 100 percent by Russia."
"I can almost hear Vladimir Vladimirovich Putin saying, "Excellent." "
from: gristmill.grist.org/st...
they aren't cheap
"Estimates of the cost to construct nuclear power plants are as high as $4,000 per kilowatt, as compared to about $1,400 per kilowatt for wind projects."
They are expensive to dismantle.
"Nuclear plant owners are responsible for costs to dismantle retired units, dispose of waste, and decontaminate the site. Each unit has its own decommissioning trust fund, paid for by customers. Wisconsin ratepayers have spent $1.5 billion for the eventual decommissioning of the Point Beach, Kewaunee, and Genoa plants."
disposing of the waste is expensive and dangerous
"Part of our electric rates go to payments to the federal Nuclear Waste Fund, which is intended to fund the construction of the Yucca Mountain repository in Nevada and pay for transportation of waste to the proposed disposal site. To date, Wisconsin customers have paid about $600 million into this fund."
That's just one state.
And there is no accountability
"The nuclear industry has long enjoyed limited liability for nuclear accidents under the Price-Anderson Act, which ensures that taxpayers, not industry, will pay for damages in the event of a serious accident."
www.cleanwisconsin.org...
And here's an example of what solar can do. and do it without any of the dangers of hidden costs of nukes and oil.
Yes alternatives need subsidies to get up to scale. So far they are miniscule compared with the subsidies for competing fuels.
Scientific American A Solar Grand Plan
www.sciam.com/article....
"Solar thermal power plants such as Ausra's generate electricity by driving steam turbines with sunshine. Ausra's solar concentrators boil water with focused sunlight, and produce electricity at prices directly competitive with gas- and coal-fired electric power."
"Solar thermal power plants can store energy during daylight hours and generate power when it's needed. Ausra's power plants collect the sun's energy as heat; Ausra is developing thermal energy storage systems which can store enough heat to run the power plant for up to 20 hours during dark or cloudy periods."
"Solar is one the most land-efficient sources of clean power we have, using a fraction of the area needed by hydro or wind projects of comparable output. All of America's needs for electric power – the entire US grid, night and day – can be generated with Ausra's current technology using a square parcel of land 92 miles on a side. For comparison, this is less than 1% of America's deserts, less land than currently in use in the U.S. for coal mines."
www.ausra.com
blogs.business2.com/gr.../
And go to Green Wombat to see what's already happening in California with solar thermal power plants
www.setamericafree.org...
www.monitor.net/monito...
www.progress.org/2003/...
www.eoearth.org/articl...
and buy financials and their toxic waste paper.
what great advice
DUG: Ultrashort Oil/Gas
SMN: Ultrashort Basic Materials
Gold and oil have obviously been running much longer than that, but the fundamentals for both IMO remain as strong as ever, especially oil. Anyone who doubts the case for peak oil at this point should buy a house from Kunst--if the bank hasn't repoed it by now. The world will consume every produceable drop of the stuff for a very long time--and at higher prices than we can imagine today.
Gold needs a bit of a rest now after it's latest run, but since when is a routine technical consolidation considered a "collapse"? CNBC and its touts truly look like fools when they throw these words around so carelessly, and I've been amazed at the Cramer/Kudlow dog and pony propaganda show lately in which they try to talk the US stock market higher. They're emitting a distinct air of desperation lately, and Kudlow's looking the bigger fool by the day IMO.
And with the fed all but turning the dollar into play paper and staglation rearing its ugly head, I see only strength ahead long term for gold, but exited a position in FSAGX a couple weeks ago when gold looked ready to roll over.
Much of the conflict here in sentiment has to do with different timing windows, with Barron's usually representing the LT investor vs the ST/IT trader. In this particular case it appears Barron's is trying to give trading advice to investors, which is a bit screwy. Either way, I still think they're wrong to be calling an end to this bull when it's just gathering some steam for a massive multi-year run.
You Americans yell a lot about high commodityprices and bullruns...
It's all about your money, the US$ have headed way south fast!!
Can't say we feel any heavy bull in let's say... gold. From €500 to €590 thats 18% in one year. And 18% can I see as normal because a lot more Indians and Chinese got a lot more money to spend now.
High prices are here to stay you just have to make sure you have a strong currency.
Regards // J
"This is absolute insanity.......Half of the the "experts" are screaming to get out of commodities as quickly as you can while the other half is screaming to get into commodities as quickly as you can."
And you know what is really scary. Both halves are LIKELY correct. I too am bewildered.
Just hang on to your job and to your gold. You may not get rich but you will eat and you will NOT go broke. You could get rich. Maybe not. But at least you will not be broke.
Maybe have BOTH gold and have cash FDIC insured. I have a friend who just bought a 4 year CD at 5% interest. He may be nuts but who knows, maybe I am to think that he is.
This is just a wild time right now. Who knows what the Plunge Protection Team is going to do? You tell me how to plan for NEW regulations, an unknown President in January, both inflation & deflation at the SAME time, and a creative Fed Reserve Chair who likes to print lots of money but does not seem to affect inflation or the M1 money supply. Something is whacky. Are the formulas fudged? It is all very wild and crazy AND unpredictable.
A war in Iran would provide a lot of excuses for a lot of people right now AND make many folks even richer. Hang on it is going to get exciting. You ain't seen nuthin yet.
sion
Jersey, you are correct and you will notice my post name as it says the same thing. Everyone is so sure of their views on commodities but there are opposite views. If the Chinese economy collaspes then commodity prices will go down, it not, they will rise. However, food is a necessity and it can't rise too high or people will starve and they will revolt.
I would place my bets for the long term in oil, alt. energy, and silver. All will be needed and are presently becoming in short supply.
Long-term, commodities have nowhere to go but up. Short-term, don't bet on it.
Really...really useless...
Answer.. There are lots of ways but they all require energy in some form or another and as no process is 100% efficient. The energy required to make extract the hydrogen is always going to be greater than the energy utilized when it is burnt for fuel. Innovation may give us better processes to generate and store hydrogen but there is no perpetual motion machine and no free lunch.
Wind power as the saviour? Give us a break! Sure up to 20% of the total electric power consumed could come from wind power, but to depend on any more puts the whole grid at risk. The wind doesn't blow all the time anywhere. So you need another back up for those windless days, and nights... Days, maybe some solar would cover some of the deficit but on those cold windless nights when you are sitting freezing in the dark you will get to realise that depending on too much "alternative"... energy which by definition is erratic in supply might not be such a great idea. You might find yourself wishing for a nice big nuclear plant churning out hundreds of megaWatts of baseload power which would keep the wheels of industry and the home "fires" toasty warm.
Besides, all of the alternatives are very "dilute" sources of power. Wind farms have to cover thousands of acres in order to capture a reasonable amount of energy as does solar. Speading these around helps to cover for local weather variations in wind, cload cover etc. but just how do you think this dispersed energy gets to where it is needed.. The electricity gid has be be much larger, cover longer distances and have a large amount of redundency built in in order to use this alternative power effectively. Funny thing, but that needs metals; lots of metal especially copper (form windings, wires and transformers), steel (for transmission towers), silver (for switch gear) etc.
This rosy future where all our energy comes from everlasting 24 hour sunshine and the perennially cloudless sky, with steady breezes that never vary and which blow everywhere power is consumed at a rate to cover the load regardless of time of day or the curent weather, and where no metals, oil, gas, uranium or any other "commodity" is ever needed or used, is a fairy tale straight from the pollyannas of the "green revolution". THINK!
1) Capital Expansion: DEER, CAT, BUCY, JOY, etc. are enjoying phenomenal growth because farms and mines are buying their equipment as they expand production to try and meet demand.
2) During the strong dollar 10 year run in the 90's the commodity sector stagnated and companies contracted to try and stay alive. The deeper you push a cork underwater the higher the parabolic rise when the pressure is released. Adjusted for inflation, commodities are just now getting back to 100 year "norms", and the pop will take them higher.
3) The public and most funds have not yet participated in the commodity boom as evidenced by their total portfolio percent exposure to the sectors. We can't call it a bubble until we see greater participation by the public at large.
4) The mines, farming, and energy services sectors are the only sectors hiring at record levels, another sign that the top is not yet in.
SILVER
one must ask himself -'do i really want to own dollars'? do i really want to own any fiat currency? well the answer has to be no, no, No, NO!!! this is not a bubble, this is an event which will effect us for the next 20 years as the dollar drops from current levels near 72 to most likely under 50. why do people fail to realize the USA has to monetize it debt to repay former strong dollars when borrowed with dollars worth less than half. doing so cuts the debt in half in constant dollar terms. own certain stocks, own art, wine, collectables, precious metals, or other commodities - JUST DONT OWN DOLLARS.
Yea right. Gasoline inventories are at 15 year highs. Demand is dropping. So why are the prices at record highs?
There is no current shortage of oil. US inventories dropped because businesses followed a normal business practice of reducing inventory when prices go flying higher. Especially when oil futures went into backwardation last July. There is no incentive or reason for them right now for them to put inventories back where they were 2 years ago.
If OPEC dropped their quotas and prices stayed above $100, there would not be a drop more added to US inventories.
1) Commodities are increasing in US dollar terms, but in other currencies as well...so it is not merely a US dollar play, and over the long term, commodities can rally with an increasing dollar (but not short term).
2) Commodities are an asset class, simple as that, although under owned. Most people, by far, have little or no exposure.
3) Commodities do well in a rising inflation environment, but tend to under perform in stable or falling price environments.
4) Why no mention of the "bond bubble"? Bonds are ridiculously overpriced and under yielding. Why isn't the smart money rushing for the exits from bond exposure, including treasuries? Answer: There is hope of another rate cut, and inflation expectations are for moderating prices going forward.
5) Keep your exposure to commodities to a reasonable level--say 5-30% depending on your inflation expectations, and then don't worry about it. Diversify across the four mega classes of assets and the markets will take care of themselves--real estate, stocks, bonds, commodities. Then it doesn't matter if Barron's is correct or not--going forward, you are protected.
midwestern
neighbor
Tiedeman
Tiedeman
Cramer gives a lot of great advice. Even his harshest critics will concede he knows A LOT. Say what you want but Cramer is an immensely powerful man and he's accomplished that feat with relatively little help. I would argue that Cramer is one of the 5 most powerful individuals in the USA. Right below Oprah :D
And yet the lowly oz of gold still buys today what it did 100 or 2000 years ago - a damn fine suit & shoes, or the finest toga and sandals to be found on the streets of the Roman Empire.
The PURE definition of inflation is: more "currency" units each with less purchasing power, period.
Prices do not rise vis gold. More dollars, worth ever less, requires more of them to purchase the same amounts of goods or sevices.
According to Marx, Lenin, and ideological pal Keynes; inflation, along with graduated taxes, are the millstones with which to grind away the wealth of the people - and which not one man in a million could detect because of it's invisibility.
It's the EXACT reason the Constitution calls for ONLY gold or silver money, and NO fiat toilet paper a la the 2nd Reich or Imperial Rome, because elites can diddle with it for their own benefit to the people's impoverishment, as stated by too many founders to EVER be quibbled over.
Does ANYONE know that Hamilton was married to a Rothschild? Or that Rothschilds were behind Rockefeller & Morgan who conspired to create the FED, the author of the FED being Paul Warburg, Hitler's banker Max's brother?
Read Murray N Rothbard's "Wall Street, Banks and American Foreign Policy" for the eyeopener of your lives:
mises.org/resources/12...
an excerpt from the intro:
The New Deal economic policy was, as Rothbard demonstrated, prefigured by Herbert Hoover, champion of big business, and foreshadowed in the reforms of the Progressive era. As the
revisionist economic historians, such as Gabriel Kolko, have shown, those who regulated the great industries in the name of progressive "reform" were recruited from the very cartels and
trusts they were created to tame.
And of course the monopolists didn't mind being tamed, so long as their competitors were tamed (if not eliminated). Every giant leap forward of economic planning and centralization—central banking, the welfare state, "civil rights," and affirmative action—was supported if not initiated by the biggest and most politically powerful business interests in the country. The House of Morgan, the Rockefellers, and the Kuhn-Loebs must take their place alongside the First, Second, and Third Internationals as the historic enemies of liberty.
Giant multinational corporations, and their economic satellites, in alliance with governments and the big banks, are in the process of extending their influence on a global scale: they dream of a world central bank, global planning, and an international welfare state, with American troops policing the world to guarantee their profit margins.
After the long battle to create a central bank in the U.S., the high priests of high finance finally seized and consolidated control of domestic economic policy. It only remained for them to extend their dominance internationally, and for this purpose they created the Council on Foreign Relations, and, later, the Trilateral Commission.
These two groups have been seized upon by the new populist Right as the virtual embodiments of the Power Elite, and rightly so. It is only by reading Rothbard, however, that this insight is placed in its proper historical perspective. For the fact of the matter is that, as Rothbard shows, the CFR/Trilateralist network is merely the latest incarnation of a trend deeply rooted in modern American history.
Long before the founding of the CFR or the Trilateral Commission, there was a power elite in this country; that elite will likely endure long after those organizations are gone or transmuted into something else. Rothbard's unmasking of the historical and economic roots of this trend is vital in understanding that this is not a "conspiracy" centered in the CFR and the Trilateralist groups, as such, but an ideological trend traditionally centered in the Northeast, among the upper classes, and deeply rooted in American history.
I put the word "conspiracy" in quotes because it has become the favorite swearword of the Respectable Right and the "extremist"-... Left.
If it is conspiracy-mongering to believe that human beings engage in purposeful activity to achieve their economic, political, and personal goals, then rational men and women must necessarily plead guilty. The alternative is to assert that human action is purposeless, random, and inexplicable. History, in this view, is a series of discontinuous accidents.
Yet it would be inaccurate to call the Rothbardian world view a "conspiracy theory." To say that the House of Morgan was engaged in a "conspiracy" to drag the U.S. into World War I, when
indeed it openly used every stratagem, every lever both economic and political, to push us into "the war to end all wars," seems woefully inadequate. This was not some secret cabal meeting in
a soundproof corporate boardroom, but a "conspiracy" of ideas openly and vociferously expressed. (On this point, please note and underscore Rothbard's analysis of the founding of The New Republic as the literary flagship of "the growing alliance for war and statism" between the Morgan interests and liberal intellectuals—and isn't it funny how some things never change?)
A conspiracy theory attributes virtually all social problems to a single monolithic agency. Radical feminism, which attributes all the evil in the world to the existence of men, is a classic conspiracy theory; the paranoid views of the ex-Communists in the conservative movement, who were obsessed with destroying their ex-comrades, was another.
But the complexity and subtlety of the Rothbardian analysis, backed up by the sheer mass of rich historical detail, sets Rothbard on an altogether different and higher plane. Here there is no single
agency, no omnipotent central committee that issues directives, but a multiplicity of interest groups and factions whose goals are generally congruent.
In this milieu, there are familial, social, and economic connections, as well as ideological complicity, and none is better than Rothbard at ferreting out and unraveling these biographical details. Taken together, the author's small and studied brushstrokes paint a portrait of a ruling class whose ruthlessness is surpassed only by its brazen disloyalty to the nation. It is a portrait that remains unchanged, in its essentials, to this day. Wall Street, Banks, and
American Foreign Policy was written and published in 1984, during the Reagan years.
Reagan started out by denouncing the power elite and specifically the CFR and the Trilateralists, but wound up with that epitome of the Establishment, Skull-&-Bonesman George Bush as his vice president and successor. Bush is a longtime CFR director, and Trilateralist; most of his major cabinet officers, including his chairman of the joint chiefs, Colin Powell, were CFR members.
The Clinton administration is similarly afflicted, from the President (CFR/Trilateral) on down through Donna Shalala (CFR/Trilateral) and George Stephanopoulos (CFR), with the CFR honeycombed (as usual) throughout the State Department. In addition to Secretary of State Warren Christopher, other CFR members in the Clinton cabinet include Laura Tyson, chairman of the Council of Economic advisors, Treasury Secretary Robert Rubin; Interior Secretary Bruce Babbitt, HUD honcho Henry Cisneros; and Alice Rivlin, OMB director.
The other side of the aisle is equally co-opted at the leadership level, as vividly dramatized by Gingrich's retreat before the power and majesty of Henry Kissinger. One naturally expects cowardice from politicians, but the indictment also includes what passes for the intellectual leaders of the Republican free-market "revolution."...
mises.org/resources/12...
----Both parties are rotten to the core and serve the very same masters who tap, groom & place their puppets in govt, media and academe's top slots, and is why Rothbard's 40 pg essay is a MUST read for ALL Americans in understanding what this corrupt establishment LEAST wants Americans to know, having wasted billions of our tax dollars to make sure we don't via the state's compulsory educrats.----
Almost ALL media is controlled w/few exceptions - thank goodness for the WWW while we still have it!
noob
how does oil cause war??? are you really asking that naive a question??
funny how shiite's and sunnis lived side by side for centuries until the invasion... funny how few iraqis hated america when america was on their side in the 8 year iraq-iran war.
midwesterner, your grasp of history is on par with that of the president you voted for.
I was being facetious to a certain degree. I frequently watch his show and he is the one that got me in the game in the first place. He is far smarter than I am about financials and I have learned much from him but I think you overestimate his influence and power, his audience in nowhere near Oprah's.... or Jon Stewart's for than matter.
1/ Stock, commodities are a RNG (random number generator)
2/ As the world population increases by 50% over the next two generations, barring some new miracle of science commodity prices should go up
3/ We are not in a recession (yet), just a slowdown
4/ The experts, who often play with OPM (other people's money) are no more right or wrong than the peanut gallery
5/ A good point made by the article--in fact overlooked so far in these comments--is that the smart money is betting, short term, on a commodities price decrease. Another sign the US may be entering a recession (but not yet in one).
The yield curve gets inverted and mineral goes up, it gets normal or steep the minerals go down with a vengeance: a difference of few basis point make the difference between bull and bear
Thorough knowledge of the yield curve yields to substantial excess returns.
Shalom Hamou
Independent Yield Curve Special Adviser
shalem.ashalem@gmail.c...
Bubble
proponent
1. Housing
2. Credit/Investment vehicles
3. Private equity/M&A
4. Emerging Markets
5. Commodity Futures
As each of these bubbles gradually expanded in succession during the early part of the decade, these banks have made ridiculous sums of money on highly leveraged schemes. All five investment bubbles were initially based upon sound economic theses.
However, as each has burst in succession when fundamentals began to reassert themselves, investment banks leaned on the remaining asset bubbles to maintain profit margins. As these margins have begun to erode, the systems requires that these institutions delever themselves
The credit bubble of 2001-8 was the catalyst for the other four bubbles. As the housing bubble burst in 2005, Wall St. saved itself by using M&A/emerging markets/commodities to maintain profitability. These three asset classes continued to rise. Once the M&A/private equity takeover bubble burst in 2006, investors leaned on emerging markets and commodities to maintain profits. Once emerging markets crashed in late 07, commodity future speculation has been the only speculative profit engine left standing.
I'm not sure what will end these ridiculous commodity prices. The majority of the fundamental data points to high prices, high supply, and low demand but it will end. Unfortunately, this will not be pretty just as we have seen with the other 4 bubbles bursting.
t
Unless all the central banks stop printing gobs of money, or new discoveries of larger oil fields, or a major calamity taking out 25% of the world's population, the equation is not going to change much.