There has been some debate about just what is the driving force behind the surge in commodities prices around the world. I'm sure there is no single answer. Is it the devaluation of our dollar? Is it speculation of shortages in food or oil supplies? or just pure speculation, cause its the latest investment mania, much like technology in the 90's or the "Flip this House" craze of the past few years?
With investment in index funds tied to commodities growing 20-fold to $260 billion from $13 billion in five years and the price of oil and gas constantly in the news, is this a sign that maybe the speculation is near its peak?
Before you start responding, here is another fly in the petroleum jelly. The Dubai Gold & Commodities Exchange will launch trading of crude oil futures next week. Just what kind of impact will this have?
Awaiting your thoughts....
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Dear Ken, Mikel
We print money to prop up our economy. Lots of it. Every time we print money we are actually borrowing money in exchange for I.O.U.'s. When Fannie Mae declines in value like it has, yes that is a contraction of wealth. However, in order to bring about deflation we need to destroy much more wealth - like DOW dropping another 70% and the ocean of I.O.U.'s slushing around the globe to paid down. A disservice is being done to members and readers of this forum when they are discouraged to buy PM's. It can not be inflated, only in paper form, which gives them the ability to engineer a malicious attack on gold and silver like they have. In the end of this "tsunami", Gold will have the final say.
Commodotities - In response to Mikel
In all reality, our government is doing everything in it's power to drop commodities down. Governments always try price fixing and such, but that just creates shortages, because who wants to sell their goods undervalued. The Marxists actually lacked many commodities due to price fixing.
THANKS!!!
"People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true." -Terry Goodkind
Has fallen from its all time high of 11760 in June to a current 5255. That is a 55% drop in the cost of bulk dry shipping in 3 months.
This alone suggest a rapidly slowing world economy and in turn a rapidly slowing world inflation and or deflation.
another 27% in less than a month for a total 68% drop from the peak. Should bottom out somewhere in the 1500 range.. right about where it was before this inflationary pump started in 2001.
Looks like $60 bbl oil may be in the bag even before my suggestion of mid 2009. Wouldn't that be sweet for the consumer.
There is a general trend of deflation, but this is after all something that has been tested and tried in countries like mexico. Inflation followed by deflation is a sure fire way to hurt the middle class.
"People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true." -Terry Goodkind
The prices of commodities reflect the flawed system we live in. Let me explain.
All this rhetoric about 'stimulation', 'keeping the economy from failing', and any other erroneous bull that the fed and others attribute to the rates of commodities and bailouts is to pacify the masses. The increase in commodity prices in nothing more than a step in the Marxist process to the "demise of capitalism" or worse a step toward the fascist system. These things do not, I repeat, DO NOT happen by accident. It is a planned maneuver to demoralise and enslave the people and centralize the power in the USA with the current regime who by large try to operate behind the scenes.
When asked about the government holding the largest share of the housing market, due to the takeover of Fanny Mae and Freddie Mac, the secretary of the treasury responded by saying that should be an issue decided by the next president and congress. With the monetary system already in the power of the elite, and next, possibly the housing system, the move for totalitarian control will be near completion.
Michael
"People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true." -Terry Goodkind
times it certainly looks as if we are headed that way. Let us not forget that we still have the power to vote, until that is taken away any grand plan for total control, militaristic or not, at least in my opinion is improbable.
Contrary to your link http://www.telegraph.co.uk/money/main.jhtmlxml=/money/2008/08/19/cnusec...
M3 is not down to 2.1%. - Where exactly did Lombard Street get that statistic? The Fed doesn't report m3 anymore. John Williams of Shadowstats.com reports it at 15% in a a most accurate matter.
Auto sales are down, because there are not enough fuel efficient vehicles available and if they are that price is ridiculously HIGH.
that all depends on whom you want to believe.
If you take a look at the next link there is much more supportive statistics to back up what the Telegraph reported... How can you ignore that along with everything else you hear about on a daily basis with respect to other instruments of credit in decline ie: housing, auto's, commercial properties.
What about Fannie and Freddie.. this so called bailout will have the largest deflationary impact of all that has happened in recent months and will no doubt last for many years to come.
I tend to think that you will only believe what and who you want to believe and that you have no faith in people to adjust and adapt rapidly in times of crisis. Take a look back at WWII era or talk to your parents to see the sacrifices they made in a very short time span.
I will also take issue with your claim that auto sales are down simply because there are not enough fuel efficient vehicles. Sales are down cause people are not borrowing to buy! Unemployed people and people that are facing foreclosure don't buy cars! There are many cars out there that get 30-35 mpg. The real fact is that the easy credit is disappearing and how many of the auto co's have ceased leasing vehicles? This and the fact that hybrid costs are very high are very supportive of a deflationary environment.
It's called monetizing debt. Which is very inflationary.
The Fed lends out an average of 18+ billion a day. Not off their balance sheet but by the wonderful creation of the auction window (printing press). The impact you say is deflationary? And how is the high price of a hybrid deflation?
Fannie, Freddie, AIG etc etc all bailed out, sold off gobbled up, whatever you want to call it. The Fed continues to pump billions into a broken system.
And still, the deflationary cycle continues....
Any doubts now that all this so called money creation and bailouts can stop what now looks like a much more worse deflationary cycle than even I expected? I didn't think it would get this bad for at least another year or so. Either that means it arrived a lot sooner or it will get much worse.
As Ron Paul said today... Like throwing money down a rat hole.
Bailout is inflationary, but it's in response to a local or short term deflation.
"The government should be afraid of its people, not the other way around".
Yes, well almost exactly! but what happens if you keep throwing money at things that are already overpriced or worthless (enron)? Do the inflation attempts come to a point where they no longer work and eventually stop?
My answer, yes, they do.. the end result of to much inflation is and has always been deflation and possible depression. We are in the early stages.
Instead of looking at one aspect as so many do ie: the fed is printing or bailing, look at all of it..
Bear Stearns, Fannie Freddie... all equity got wiped out... deflation!
The Fed backed up the good assets with loans. They don't give it away for free. This will have to be payed back at the expense of the banks tightening standards loaning less and raising capital... All deflationary aspects!
Housing, Gold, Oil, Corn,Wamu, Lehman, stocks... etc etc etc etc... all going down... deflation
Now that the government has taken on what is up to 6 trillion in mortgage securities and added that to the taxpayers bill.. including 9 trillion in debt and 70 trillion in unfunded liabilities. Just how will they pay for these things? raise taxes? not a chance, it can never be covered!
Not quite
Housing, gold, oil, corn, wamu are not all going down.
At least housing and wamu, like Fannie and Freddie are not going to dissappear, it's called "TOO BIG TO FAIL". They SHOULD go down, but they won't once bailed out.
Yes, it can never be covered, that's why bubbles have to burst to restore responsibility, or all other "solutions" will be inflationary.
"but what happens if you keep throwing money at things that are already overpriced or worthless (enron)? Do the inflation attempts come to a point where they no longer work and eventually stop?"
That's what we call hyperinflation, hasn't happened yet, expecting it to come unless we stop bailing out. Since Americans are sleeping and don't care, it's likely going to come soon.
"The government should be afraid of its people, not the other way around".
they are doing is simply throwing more money at something that is in the most part already bad in order to prop up what would be massively deflationary occurrence had they not. Kind like continuously throwing your money into a stock called Enron only to wake up one morning to realize its all gone.
How can you not see this? All you have to do is ask yourself what would have happened if they didn't intervene? propping it up is only extending the inevitable. The housing and mortgage markets are in severe decline. How in the world can you see this as inflationary after a 5-6 boom in housing that ended almost 2 yrs ago. The inflation is long over.
How much equity was just lost in FNM FRE stock on Monday? My best guess is about 6 billion FNM and 2.5 billion FRE... lost gone forever.. ie: deflation
And I never said high costs of Hybrid vehicles was deflation.. If you read the whole paragraph what I said was the inability to get loans and finance vehicles because banks are tightening standards is deflation... They certainly are not going to lend $50k to someone for a hybrid if the don't want to lend em 30K for a conventional..
news items on the inflation/deflation debate
Sharp US money supply contraction points to Wall Street crunch ahead.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/19/cnusec...
If the Fed Is So Easy, Why Is the Growth in Money and Credit Aggregates So Weak?
http://www.safehaven.com/article-10566.htm
Unemployment at 6.1%
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aEog6yCtmRXQ
New auto prices are falling at a record rate
http://www.latimes.com/business/la-fi-autos5-2008sep05,0,587397.story
"Now, until I see hard facts and real things that can support "peak anything" I ain't buying into this... "
Well, there's a flip side to that statement - try to dig out some facts that we are energy sustainable and aren't facing a crisis in the next few years. Look beyond the noise. Turn over some stones and look where mainstream ignores and you will find with a little due diligence an abundance of statistics and data.
I put out a few good points last time mentioning oil discoveries. Russia's production is actually declining by the way (peaked?). Venezeula decline. Indonesia, kicked out of OPEC due to falling production. Brazil's find? Won't be available for 5-10 years! It will supply the world for less than 2 years, maybe 1yr. That means we have to discover one of those fields every year.
For every decline that may occur in our consumption, the production decline is two-fold.
Our consumption rate has dropped a full 1.5% due to high gas prices... China's has risen 14% due to the introduction of automobiles. China expects to add 120 million new cars over the next decade. That's more than Saudi Arabia's entire ouput -- JUST TO FUEL CHINA'S NEW CARS!
3 0f the 4 Supergiant Oil Fields are in decline. The one that hasn't is Ghawar in Saudi Arabia, it's a 50 year old field.
The idea that cheap oil would last forever is a myth. It's based on faith, not facts! It is indeed, finite.
Green technology - decade away
To say that the nation will get 25% of it's energy needs from green technology within the next 10 years is a bit optimistic. I think were a little too late with the green technology push. A Manhattan Project for Energy should of been pushed forward at least 5 years ago. Too much was at stake back then for big oil and other industries to acknowledge the need for green energy and so you never heard about it through the media or congress, although you rarely hear any type of acknowledgment now in congress besides for Roscoe Bartlett.
Question? - Toyota Prius is attempting to make the plug-in breakthrough by next year, in fact, most manufacturer's now say they'll have plug-ins available within 3 years, where are we going to get the electricity from to energize these vehicles?
Our infrastructure is shot as it is. Rolling blackouts happened in my neighborhood all summer long and it wasn't even that hot. The East Coast has such a load that we observed a power outage so large it affected a quarter of the population in one single day. Now imagine 100 milion cars plugging in every night!
I leave you with a popular saying in Saudi Arabia,
"My father rode a camel.
I drive a car.
My son flies a jet airplane.
His son will ride a camel."
what you are saying... but once again.. I will say these facts have yet to have an impact on my ability to get gasoline at any one of the dozen or so stations that are within a 2 mile radius of my home.
When I start to see any evidence of change.. I will adjust my views according to the situation that is unfolding..
Yes, there is a problem with our nations electric infrastructure... but this is also being addressed. Here in CT they have been running new high voltage lines and new poles throughout the state.. These things are a huge upgrade to what was in place before.., so there are things being done... take a look around and try not to ignore these other facts.
You can't argue against our near term sustainability, so I take it you're conceding the argument. Although you're gonna wait until it's past the 12th hour to openly admit it.
been trying to explain in these pages is that my analysis is short term, up to six months out. I think I have been very clear on this.. The future beyond that is debatable and I have also tried to make it clear that my belief is for a rapid move out of oil based fuels into green technology ( the Chinese are very much into this also, take a look) along with what will probably be a significant change to our system of banking and credit, the continuing burst of the largest bubble of them all, the credit bubble, these things combined with many others will have a deflationary impact on our economy. I have looked at both side of the coin and try to make my longer view analysis based on what facts will overrule others.
I never try to have such a narrow minded view as to think that the people of this country cannot fix the problems that you see as our imminent demise. I am an optimist. You should take a look around... listen.. people are responding to these issues and the crisis's that you speak of are not as near as you think. I think we will all be surprised just how fast things can change.. To think of my life as a boy or a teenager and then look at it today with all the technological advances, especially the fact that I spent many years in manufacturing and saw just how rapidly things can change.
The election will also have a huge impact on what will come and may very well change or alter some of my views, but we all know how fast things can change when it comes to politics. One thing that will eventually need to be addressed is the national debt, deficit, ss, Medicare and there is only one way out of this, they cannot grow or tax out of this which is the most deflationary aspect of this whole debate.
Read it here
May send equities blasting higher for a couple days after the last days trouncing.
That should accelerate the velocity of money even further. Banks are borrowing the money for free and getting rewarded for it. What a shame our monetary policy is
Bobo...errr I mean ulaszek... ;) This can be partially correct.. but given this statement, is it not true that the velocity of money coming out of equities and commodities has greatly accelerated in the past few months?
So... if your claim (and I am making an assumption here) that velocity contribute to inflation, then have we just not experienced a massive deflation?
Also, as the money flows into equities and the dollar.. there will be a flow out of bonds, gold and other commodities.
Let me also touch on recent history also, we have, in the period from about 2002 to 2007 witnessed what was a rise in just about everything, stocks, bonds, commodities, housing, etc.. from what I have read there had never been a time in American history that this had happened. As we now know this was the result of the Fed's easy money policy that was put into place to prevent what was a very strong possibility of an outright deflationary depression that was precede by the tech bubble crash and the Sept 11 attacks..That coupled with a still lingering spend, spend, spend, social attitude among the masses due to a booming economy during the late 90's..
The result was more bubbles... and the bursting again... but can the Fed recreate the not to distant past again? I think not. If these speculative bubbles were decades apart yes.. but my analysis tells me no.
like I said.
definition
Velocity - is the turn over of money.
I should've said the speed of of money growth should pump up even more.
expectations at 5 yr lows..
'If inflation falls below what the market is pricing in for the next few years, I would expect an aggressive response from the Fed to push inflation back up to avoid the risk of deflation.'
— Michael Pond, Barclays Capital
Along these lines, signs of further economic weakness around the world suggest oil prices may even go as low as $87 a barrel in the next three to six months, according to UBS.
my comment... say it aint' so... who woulda thunk? ;)
Read it here
U.S. Must Buy Assets to Prevent `Tsunami
How could I have forgotten not to mention what effect the banking crisis is having.
Just what kind of Tsunami would it be Bill? .... Inflationary?..... not a chance. I'll let him explain.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZLLPW9YEa60
PS: I should also mention the timing of this statement from Gross seemed almost too perfect from a technical standpoint.
You have numerous opinions and layed a lot out.
In effort not to be all over the place and confuse any of the sisters and brothers, I'll address your chosen topic of Commodities.
First, let me say that nothing goes vertical long, no matter how ripe the conditions. Speculation has only been the fashionable reason as of late for high commodity prices. If you take a look back every year the experts give complete different reasons for the rise in commodities, this year it has been speculation.
-Take a look at agriculture. We have record harvests every year, yet stockpiles are at 50 year lows. World consumption is growing exponentially every 15 years and our planet as of now can't keep up
-copper, until recently had only a 14-day inventory!
-And OIL; Not speculation, Not hurricane Katrina, Not the war in Iraq, Not terrorism (each were the given reason at the time)... Oil demand is outstripping supply currently 87/85 and rising 2.3% a year. If you think 4.00 a gallon is expensive what are you gonna say when it's 8.00 or worse "levies dry". Mexico is our second largest supplier and it's production has dropped 60% in the past few years!
Oil discoveries
1960's = over 600
This Decade = fewer than a hundred
So, not only is Commodities in a Long term bull cycle, it also will take off due to a very simple equation supply versus demand. Then you can throw inflation into that equation as well.
I can go on and on but don't have time right now. I suggest you take a look into Peak Oil or even Peak EVERYTHING! Our planet's resources are simply being stretched to it's limits. A good book is "How to Profit from Peak Oil". The first half of the book is like a textbook with lots of compliled facts and statistics, but it gets easier to read and gives a great overall view with describing the dire position we are in. From Natural Gas to nuclear energy even. Even Uranium would peak within 20 years if countries took a aggresive approach.
extensively on peak oil including Defeyes's work on Hubberts peak... Thing is .. I agree.. but only to a certain extent.., many critical factors are not being taken into consideration when applying this theory to what can happen to price and demand do to a slowing world economy.. a changing social attitude towards oil based commodities and fuels... and most of all what will be (hopefully) a rapid change to green technology.
There are so many little things that are happening that go on every day that go unnoticed by most that are advancing our move towards this new wave..
Now, until I see hard facts and real things that can support "peak anything" I ain't buying into this... It is, simply a speculation of its own.. No gas lines, no food lines, Home depot has racks of copper wire in all its stores..... The Saudi's are still pumping and Brazil has yet to tap into that huge oil field of their coast.. not to mention what Iraq, Russia and some former soviet states have yet to tap into..
You have to understand that when I write about these things it is more of, in a current sense or form. It is not that I disagree with what you see as a possible longer term view... I am fully aware of what people such as yourself are saying.. It's just that I believe that no one knows how things are going to turn out.. I always say the future will be nothing like anyone has predicted.. things can change so rapidly.
posting ulas.!. Good to see someone who understands some of my thoughts.
I agree with the fact that most here don't understand what I see as a trader. My point was that many were looking for the sky to fall and I was simply trying to say wait a minute.. not yet! let me tell you why!
Yes, Faber does believe we are in a 20 yr bull market cycle in commodities.. I was with him up to the point when things got out of hand lately with oil and many others doubling in 7 months, that along with the EXCESSIVE speculation going on... this may have very well changed things for the long run.. This must be taken into account when making an analysis.
I am open for the continuation, but this will not be after oil, gold finish their respected corrections and find some sort of price base... There is now way, given no huge economic or geopolitical events, that these markets will just shoot back up...
Also, yes, I do loosely follow Prechters work.. But I think wave analysis is useless. Precther has written some very interesting things on the markets and socionomics. But he is another that always sees the sky as falling... Its coming, just not yet.. but I also believe it can be avoided.
Now on to inflation/deflation
The one argument I always hear and I find it to be very weak is that Bernanke will print.
As we have witnessed in the last few years the result of what printing does... inflation, over indebted people and markets and the resulting collapse in the debt cycle.
How people can ignore all the deflationary forces happening is dumbfounding to me... it is everywhere you look.. commodities plunging... housing collapsing... savings rate exploding.. banks tightening lending standards and lending much much less.
As we witnessed in the late 70's- early 80's cycle... the unwinding took many years.. first we had the unwinding of rate hikes the commodities busting... housing busting.. and then banks failing... the final catalyst was the 50% collapse in the stock market in 87... we had many years of contracting inflation if not outright deflation.
The situation is much similar today yet much worse... so the bursting of the debt bubble and ensuing deflation will be much worse.. Bernanke can print all he wants.. but if nobody wants it, what happens? As you have seen lately, all the work the fed has done is nothing more than try and prop up banks balance sheets.. this is NOT inflation... until the banks all get back on solid footing and this WILL take some time, ... there will be a contacting inflation or deflation.
This along with many other facts that I could go on and on about and try to post in these pages will be my guide...
One major factor I have yet to touch on much and owe a great thanks to Prechter for is how peoples attitudes change... what is currently taking place now will change the way we view and value money and the way we live our lives... energy will play a big part of this and is another very important thing that many fail to acknowledge when talking of inflation... people's attitudes are rapidly changing with regard to this and I expect a rapid change to greener fuels if the government will just get out of the way. This will have a HUGE impact on oil. Green technology is massively deflationary!
As far as other countries repatriating there dollars?.... this is a strong possibility if the congress keeps up there ways... but there is absolutely NO sign of this.. matter a fact there has been a huge move into dollars as you can see with the recent move.
As I said... I cannot predict that far into the future , but I can see trends developing that will have an impact in the near term... so if anybody is looking for things to collapse in the near term, you can just forget about it... not yet! stay tuned..
Thanks for your interest and response.
PS: funny now as I listen to all the talking heads on the bussiness news, they all claim to have believed all along that oil was going back under $100 bbl and owe it all to excessive speculation.. This is hilarious... there were few who held this view as I watch about 6 hrs a day... Now they all claim to have believed this.
Nothing but a bunch of crooks and lairs.
I don't think BTM members are really involved of trading in the Future's market or are a day trader of sort. The reason I say, is the information you're giving is a short term outlook (3-6 months). Marc Faber is rather general in the his recent interviews and his positions are only revealed when you pay for a subscription. As you listen, Faber says you will see sharp declines in commodities have happened and will happen elsewhere in basic materials, but he does see commodities returning back into a bull run by early next year.
Let's set the record straight. If you are well studied and researched you cannot argue that we are not in a long-term bull cycle for commodities. We can debate that in a separate post.
Issue at hand, Deflation
I take it you follow Bob Prechter, and believe in his Elliot Wave theory, right? Mr. Prechter and few others are Technical analyzers. Technical analysts can chart you a map for the future because they follow sample paths (historical trends). These predictions would eventually prove accurate if it wasn't for one thing. INTERVENTION. The Elliot Wave can't predict and won't realize what the fundamentals have set in place.
THe government will INCREASE spending every year as they always do and require the printing press to run. The government WILL bailout Fannie & Freddie when the time comes (thats creation of half-a-trillion right there). There WILL be another Stimuls package. There will be more and more and more of everything.
Now, I understand where your coming from with your deflation theory. It's looking a lot like 1929 and a major crash is looming (cash destruction), and hundreds, maybe thousands of banks will fail and contraction must take place. Right? ... Not very likely, not very likely at all. There are many reasons why "Helicopter Ben" will undoubtingly inflate the money supply away.
1) The value of the dollar would rise without any Americans owning any. The result is the Trillions will return via foreigners (i.e Russians, Chinese) looking to acquire a few things.
2) How on earth will government continue to support itself? It has grown so big that it is like a junkie needing a higher dose to satisfy it's craving. Do you really think that Washington will contract? Me, Neither.
3) Ben Bernanke's Master Thesis at Princeton was on the Great Depression. He believes the Great Depression wouldn't have occurred if the Fed inflated the money supply through bailouts and stimulus-like packages. Besides, Congress won't let him deflate... THEY"RE ADDICTED TO SPENDING. ANd they know that they'd all be voted out of Congress if they couldn't give the people something for nothing (or print up to distribute).
This is my first post at BTM. This was the second forum topic i've read, but it's a topic that I feel strongly about as do many Austrian theorists. I don't want people to get confused in the deflation\inflation debate.
The current situation is a GREAT opportunity to buy into PM's and commodoties. People at BTM should be urged into protecting themselves at this time. Buy on breakdowns, not on breakouts!
Please look at the long term and not this short term rally. The dollar is staging a cyclical rally for the time being and that is it. Commodities can linger at this price for months, even quarters... But when it does start that next leg up, and the dollar tumbles below 60 on the index - Look out!