Skip to comments.What Caused this Gangbusters Commodity Boom?
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 ...
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
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.
At $100 dollars a barrel and heading for $110, the rise in oil prices is hardly “paltry”.
People are jumping in to get above average returns on their money.
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.
Burning our food and shortening our Oil supply. Also, artificially supporting a renewable energy program that cannot support itself or never will.
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.
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.
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.
” la nina” crops
What else ya gonna put your wealth into? Stocks? Housing? Municipal Bonds? Treasuries with a negative yield??
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.
The perfect storm-weak dollar, higher input costs, higher demand.
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.
Not a commodity boom so much as a dollar bust.
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.
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.