dlaw

Time to Buy China, Copper, the Canadian Dollar and Oil

BRIC, hard assets/commodities, coming inflation/upturn.

This has been the trade everyone has been trying to put on since the summer and it really has not worked. Gold has kept you even, but not much better.

Theses die hard.

Impact of Commodity ETFs on Prices: An Update

Marxbites successfully corrected my impression that the author is a lunatic by reminding me what an actual lunatic sounds like.

Here's a suggestion: learn something about the law before you opine as to what is and is not unconstitutional. Otherwise, you will continue living in darkness.

Impact of Commodity ETFs on Prices: An Update

Inflation?

Are you a lunatic?

Impact of Commodity ETFs on Prices: An Update

Your theses are silly.

First, the idea that all this is the Fed's fault because it gave "investors" low interest rates is nonsensical. If they had been real capitalists instead of charlatans they would have gone out and found investments that added value instead of finding ways to milk the last dollar out of housing.

Second, we already know what the problem was: Lemon Loans. PRIVATE banks sold loans based on inflated assessments and deliberately defrauded investors by trying to pretend they actually believed "stated income" figures - a story that doesn't pass the laugh test. They had every reason and every responsibility to know better and they chose not to because it was profitable.

If Fannie Mae was allowed to purchase assets that were too risky, crooked bankers were willing to sell them junk Alt-A paper and that - by the numbers - is what destroyed the GSE balance sheets.

Finally, commodities were clearly in a bubble and you clearly shouldn't be advising anyone on whether to buy or sell anything if you don't see that. You may think that there is no such thing as bubbles and that fundamentals always rule, but you're obviously wrong.

Gold? Gold couldn't be headed down any faster. If it takes more than a month for gold to dive through $700, I'd be stunned. Oil? If OPEC doesn't save your long positions in oil, they can't be saved. The question is not whether oil is headed to $80/$85, but whether it can even stay there for a week or so before plummeting.

Commodity Conundrum Solved: The Hidden Parameter in Interest Rates

Mr. Hamou,

Thanks for your response and your work. I didn't mean to be harsh.

I think you've made a valuable contribution but the problem is very much one of scale. I have no reason to think that the dynamic you describe is not involved in the thinking of the market. I think it would represent a very interesting case for a trade in a more settled market. I also think that you may inadvertently have hit on something deeper and more dramatic going on in forex - but that's a side issue.

But the article you're responding to (given your title) makes a compelling case about unregulated long-only players and reminds us that we have "been here before". As we all know, markets can easily become detached from the underlying economics of what they are meant to price - and quite often do. Unregulated markets where information-flow is even less are even more vulnerable.

The shape of the gold and oil curves alone certainly indicate to me that something "behavioral" is probably going on and probably beginning to predominate in the market. I am also becoming "bearish" on commodities (medium term, depending on your definition) but because I feel I see the evidence of "herding" behavior. Mind you, I accept the argument that there has been an increase in world demand and that demand would push prices up steadily over time, but that kind of background absolutely sets the stage for speculative excess.

Have you ever considered *reversing* your thesis? Could it not be that what you are observing - particularly in the gold market - represents money flows that have become so large they are beginning to influence credit market behavior? Central banks act in ways that are discontinuous, of course, but they are also reactive.

Commodity Conundrum Solved: The Hidden Parameter in Interest Rates

Also, I think you'll find that, for example, copper companies tend not to move all - or even most - of the proceeds they make into long-term instruments. Rather, as efficient stewards of capital they favor what they judge to be a higher return in - and this may surprise you - the copper business.

It's called "alpha", Mr. Hamou, and whereas in finance you may (or may not) have it, in copper, they do.

Commodity Conundrum Solved: The Hidden Parameter in Interest Rates

I'm sure that, at some level, your thesis explains some thinking in the commodities market. The elephant in the room, however, is your implicit assumption that owners of minerals should NOT take advantage of today's high prices and sell product.

You should have seen the flaw of your model when you wrote this: "Under this framework, there is no theoretical higher limit of the price of the minerals."

In other words, your model suggest that mining firms are always willing and able to become sitting-around-and-doi... firms with no negative effect on their business, because they have this perfect asset in the ground. Thus the price will go to infinity if the yield curve is bad.

You'll realize this is wrong when you ask yourself why people issue short term debt when the market is clearly over-valuing short-term debt. They know they'll be able to borrow more cheaply very soon, and yet the price of short-term debt doesn't go to infinity. Why are they not willing to shut down *their* businesses until the cost of financing gets cheaper?

You think you've discovered something because of this "next to zero" storage cost. But money not borrowed in a poor interest rate environment has a *negative* storage cost. Yet people do it.

You've also completely forgotten the futures market. Since the very point of the futures market is to smooth cash prices, one way they do that is to tempt producers into locking in a profitable price. They who produce the very commodities you discuss feel - unlike you - that they cannot be sure about price direction. Do you have any evidence that mineral producers suddenly stopped trying to lock in profits with hedges? No, you don't.

That's because in the real world, not everything is a bond. A mineral in the ground is dirt. A miner not in the business of collecting money for looking at a screen, she is in the business of making dirt into something useful.

There's this thing called the "real economy" where people do material work and produce things for each other. Look into it.

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

Wonderful article and thank you so much for all the work.

I hate to be an Internet Crank, but SPELLING, sir!

I think, for example, you'll find the word you want in your introductory paragraph for all three sections has been "elicit" - "to draw out or entice forth" - not "illicit" - "illegal".