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What Caused this Gangbusters Commodity Boom?
Real Clear Markets ^ | 12/29/2010 | Daniel Dicker

Posted on 12/30/2010 7:02:58 AM PST by SeekAndFind

Commodities have been the story of 2010, having been much more robust than any other capital market this year.

Oil is up a relatively weak 22%, a paltry move in comparison to metals like copper, up more than 30%, or silver, up 70%. Soft commodities have shown even greater strength, with corn, wheat, coffee up around 50% for the year while cotton has nearly doubled in price.

What the heck is going on ? I've been following and trading commodities for most of my adult life and while I have seen moves like these in the past, this universal commodity boom, where virtually every commodity runs at once, is a brand new phenomenon.

A virtual chorus of analysts, economists and mainstream media are explaining this massive upswing in prices using all the same buzz words about recovering economies, emerging market demand growth, and sliding dollar.

All of these trends are undoubtedly true, but not even the combined effect of all three of these can explain the insanely powerful inflation we've seen in commodities this year (and are likely to see in the coming year).

Has there been a devastating drought in any of the three largest cotton producing countries: China, the U.S. and India? Only such a natural disaster would have accounted for a doubling of prices that we have seen, at least in the last 25 years that I have followed cotton trading. Has such a natural disaster accompanied the 50% rise in corn, wheat or coffee?

No. None of these commodities are being moved by disasters, nor are they moved by intense industrial growth projections for the last year or the next that are still well under even average historic levels and appropriate for a global economy just now beginning to recover from the worst slowdown since 1932.

(Excerpt) Read more at realclearmarkets.com ...


TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: boom; commodities; commoditiesboom; gold; silver

1 posted on 12/30/2010 7:03:02 AM PST by SeekAndFind
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To: SeekAndFind

Weak dollar?


2 posted on 12/30/2010 7:11:30 AM PST by Carley (PRINTING OPINION, IGNORING THE FACTS......the msm!!!)
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To: SeekAndFind

Fear?


3 posted on 12/30/2010 7:13:03 AM PST by vharlow
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To: Carley

QEII


4 posted on 12/30/2010 7:13:34 AM PST by NY.SS-Bar9 (Life is hardly more than a fraction of a second. Such a little time to prepare oneself for eternity!)
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To: SeekAndFind
Consider that China has 20% of the world's population and India has over 17%. With China and India barreling into prosperity and modernity, there will be a shortage of everything but people.
5 posted on 12/30/2010 7:14:36 AM PST by SonOfDarkSkies
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To: SeekAndFind

finite hard assets vs unlimited paper money

I’m loving my sub 5% 30yr fixed rate mortgage

gonna pay that back with Baraqqi/Bernanke minibucks


6 posted on 12/30/2010 7:15:30 AM PST by nascarnation
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To: Carley
Weak dollar?

No more calls, folks. We have a winner. Commodities aren't necessarily rising. It's the dollar that's falling. Thanks to The Ben Bernanke.

L

7 posted on 12/30/2010 7:15:57 AM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: SeekAndFind

At $100 dollars a barrel and heading for $110, the rise in oil prices is hardly “paltry”.


8 posted on 12/30/2010 7:16:27 AM PST by cake_crumb (Why do they call them "pat downs" when they're obviously "feel ups"?)
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To: Lurker

People are jumping in to get above average returns on their money.


9 posted on 12/30/2010 7:17:11 AM PST by listenhillary (20 years in Reverend Wright's church is all I need to determine the "content of his character")
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To: SeekAndFind

This guy’s selling a book, so he only harps on one of the causes, namely a large increase in speculative volume - but you cannot discount relative currency devaluations and the desire to use commodities as a hedge against such, along with the fact that there is some growth elsewhere in the world, although not nearly enough to ‘justify’ the increases in commodities.


10 posted on 12/30/2010 7:17:30 AM PST by dirtboy
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To: SeekAndFind

Burning our food and shortening our Oil supply. Also, artificially supporting a renewable energy program that cannot support itself or never will.

Simnple really.


11 posted on 12/30/2010 7:18:24 AM PST by PSYCHO-FREEP ( Give me Liberty, or give me an M-24A2!)
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To: Lurker
Commodities aren't necessarily rising. It's the dollar that's falling. Thanks to The Ben Bernanke.

That's only part of it. A lot of money is pouring into commodities, partially driven by a desire to hedge against the likes of Bernanke, but also by the fact that many newer exchanges don't have provisions for position limits on speculative positions (a speculator being someone who neither produces nor uses the commodity in question).

And as in 2008, I imagine the investment banks are now working to line to the suckers to take in in the shorts from the banks' short positions.

12 posted on 12/30/2010 7:20:55 AM PST by dirtboy
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To: SeekAndFind

When money is printed, it has to go somewhere. It’s not in the hands of the citizenry, it’s in the hands of the financial world.

And they are speculating with it. Unfortunately we pay the price with higher costs for the things we buy.


13 posted on 12/30/2010 7:24:51 AM PST by Free Vulcan (The cult of Islam must be eradicated by any means necessary.)
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To: Free Vulcan
When money is printed, it has to go somewhere. It’s not in the hands of the citizenry, it’s in the hands of the financial world. And they are speculating with it.

One of the counterpoints used against calls to limit speculation on commodities exchanges is that speculation increases liquidity in those markets.

Given that grossly excessive liquidity was a key factor in the financial meltdown, that is not the most salient of talking points.

14 posted on 12/30/2010 7:27:10 AM PST by dirtboy
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To: SeekAndFind

” la nina” crops

http://www.google.com/#sclient=psy&hl=en&tbs=nws:1&q=%22+la+nina%22+crops&aq=f&aqi=&aql=&oq=&gs_rfai=&pbx=1&fp=a1b46f39678685a8


15 posted on 12/30/2010 7:31:59 AM PST by Bulwinkle (Alec, a.k.a. Daffy Duck)
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To: dirtboy
I hate that argument.


It's the same crap used to justify HFT and even attempt to make it sound like a good thing. "Oh, liquidity, oh we're just helping the market get to the true price faster."

Provide liquidity is just an industry term for 'abuse the system to make a profit while providing no useful service whatsoever.' And the exchanges don't want to close those loopholes because they are making money hand over fist from speculators and HFTs.
16 posted on 12/30/2010 7:41:48 AM PST by Domalais
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To: SeekAndFind

What else ya gonna put your wealth into? Stocks? Housing? Municipal Bonds? Treasuries with a negative yield??


17 posted on 12/30/2010 8:02:08 AM PST by Buckeye McFrog
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To: dirtboy

I should’ve added hedging, because even the article mentions that - they are hedging against a falling dollar. They aren’t just bidding up to make a profit, a number are bidding up to protect their own assets. I would imagine some of these are foreign concerns like China or the Saudis trying to invest their dollars before they lose value.

The crux is a falling dollar. The liquidity argument works in efficient markets. Markets that are flooded with fiat money can hardly be considered efficient. Not only is the pool of money available for investment far in excess of the physical size of most commodity markets, that money is also losing value over time.

Worst part is Obama, Bernanke and the usual suspects likely get this and are doing it deliberately as part of the collapse America schtick Soros is perpetrating to get his One World imperialistic order.


18 posted on 12/30/2010 8:05:38 AM PST by Free Vulcan (The cult of Islam must be eradicated by any means necessary.)
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To: SeekAndFind

The perfect storm-weak dollar, higher input costs, higher demand.


19 posted on 12/30/2010 8:05:55 AM PST by cornfedcowboy (Trust in God, but empty the clip.)
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To: Carley; vharlow
Weak dollar?
Fear?

Both. Nuff said. No need for a huge analysis.

Except for a way to "fix" it. I say, start with getting BHO out of the WH.

20 posted on 12/30/2010 8:14:26 AM PST by Bloody Sam Roberts (Inspiration. The momentary cessation of stupidity.)
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To: Domalais
Spot on! Swishing all that funny money around Wall Street and the big investment banks creates a lot of commissions and bonuses. They, in turn, stuff the pockets of their favorite politicians to keep the music playing. Meanwhile, my socks and undies double in price. I suppose we can get our pitchforks and go to D.C. to protest...oh, wait, gasoline will be $4.00 per gallon...
21 posted on 12/30/2010 8:23:44 AM PST by WeldonsRight (Right and (apparently) wrong at the same time)
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To: SeekAndFind

Not a commodity boom so much as a dollar bust.


22 posted on 12/30/2010 9:12:09 AM PST by arthurus (Read Hazlitt's "Economics In One Lesson.")
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To: Carley

Weak dollar?

____

The dollar is not weak relative to other currencies because all countries are printing their respective currency 24/7.

The result of increased phony money is that it has to go someplace.

Right now the newly printed money is going into things that are relatively scarce—copper, gold, oil.

I am not sure why it is going into wheat, corn, cotton etc as there does not seem to be a worldwide shortage.

But maybe the money folks are betting on global cooling and the impact it could have on foodstuffs.


23 posted on 12/30/2010 9:28:56 AM PST by Presbyterian Reporter
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To: Presbyterian Reporter

The US Dollar index was 78 at the beginning of 2010 and the index is 79.4 today.

Thus relative to the basket of currencies that compare to the US dollar index, the US Dollar is stronger today than it was one year ago.


24 posted on 12/30/2010 10:05:41 AM PST by Presbyterian Reporter
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