Commodity Bubble Proponent

Think the Commodities/Mining Boom Is Over? Insiders Don't

I can point you to homebuilder quotes in 2006 where they thought their slowdown in demand was a temporary blip.

Phase I of the bubble bursting is denial

The Commodity Conundrum: Securitization and Systemic Concerns (Part III)

nice piece

The Commodity Conundrum: Securitization and Systemic Concerns (Part I)

Interesting article. I give you kudos for hitting the nail on the head

While I think that some of the rise in commodity prices is justified in terms of supply/demand, to say that derivatives trading has thrown gasoline on this fire would be the understatement of the century. All of the governmental reports, from the EIA to the IEA show inventories of all products within to slightly above the five year averages and effective spare capacity of 2.3-2.5 million barrels per day. This coincidentally, is the least tight the oil market has been since the Iraq war in 2004. More oil projects are in the pipeline and new drilling equipment is being built to meet demand. Additionally, any supply forecast that tries to predict market conditions beyond 2-3 years would be somewhat unreliable and maybe understated somewhat because companies tend to play their cards close to the vest in order to prevent others from getting in on their oil finds.

As a land acquisition manager for a major homebuilder, this market reeks of the same kind of bs that Wall St pulled with the real estate market.

While we all might be rooting for a commodities bubble to burst, I think that the unintended consequences might be far worse than $120 oil. If this market were to unwind rapidly, it would cause a fundamental breakdown to the counterparty risk models set up by Wall St, leading to more horrific writedowns and lots more pain for the financial industry and a bigger credit crunch than the one we had prior.

The deflationary problem with all of this is that the fed can't print enough money to resolve these market problems. Trillions of dollars of writedowns are far more deflationary than the billions that the fed can give banks

Commodities and the Fed: Answering the Skeptics

This argument is nonsense. The reason we don't have inventory buildups is that negative real interest rates encourage people to use the inventory rather than produce out of mines or invest in new capacity. Benny & His buddies at the fed have now firmly ingrained high inflation expectations into commodity producers minds
Why sell your copper at $3.75/oz when you know it will be worth $4.25 tomorrow?

This is why nobody wants to invest in new production. It makes more economic sense to keep the reserves in the ground. We need interest rate hikes to reverse this

Get Out of Commodities - Barron's

Since 2001, accommodative monetary policy and lax regulation on investment banks created five distinctly large bubbles fueled by Goldman Sachs and their Wall St. bretheren.

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.