I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Mon Jun 30, 2008 2:10 pm Post subject: Commodities Signal Bubble Bursting
Quote:
June 30 (Bloomberg) -- Commodities are heading for their best first half in 35 years. The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.
Whew, and I thought we were going to have to go through this Peak Oil thing, it's all just a bubble! _________________ "That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
Posted: Mon Jun 30, 2008 3:51 pm Post subject: Re: Commodities Signal Bubble Bursting
Including precious metals? I know you can't eat silver, but I don't see them declining as much, relative to the other more severe implosions which will occur around them.
Joined: Feb 02, 2006 Posts: 170 Location: Luther, OK
Posted: Mon Jun 30, 2008 5:40 pm Post subject: Re: Commodities Signal Bubble Bursting
Copper production peaked worldwide in 2004. That's why bums can make a pretty good load of cash stripping copper wire and wheelbarrowing it in. The market, however, does not seem to realize that $4 copper is not a bubble. Economists are like news anchors; they get stuck on a "word of the day" and all of a sudden that's all they can say. Right now, that word is "bubble".
Copper isn't going to go down with PO either. What are our alternatives to liquid, combustible fuels?
Fuel cells. Require copper and platinum.
Nuclear Energy. Requires copper for transmission and enriched uranium.. enriching uranium requires very high grade aluminum... extracting aluminum requires huge amounts of electricity. (copper).
Solar Panels: work by the photoreactivity of high grade silicon passing electrons to copper.
Wind Power: a turbine consisting of steel plates and large copper coils that create a current when wind force is applied.
Ethanol: requires a copper lining on the fermentation vessels to prevent corrosion (although stainless steel can also be used; but it takes a lot of electricity to make stainless steel)
And so it goes. The point is, peak oil isn't going to collapse the price of copper, platinum, aluminum, gold, silver, or even steel. It's going to drive it up. When the speculators figure that out, you can count on these industrial metals to go up even further.
Follow the money anarky321! _________________ Nick J. Allen
Hilton, Oklahoma
"The Chinese have many hells. This one is the hell of valueless currency." -- J. Albertson
Joined: Oct 04, 2007 Posts: 218 Location: North-East USA
Posted: Mon Jun 30, 2008 5:43 pm Post subject: Re: Commodities Signal Bubble Bursting
yes, including precious metals
there are alot of gold bugs flying around this nest, but once it sinks in that we are in a deflationary environment there will be no more floor to support such high prices for them
the current upsurge in the prices of commodities is partly due to the widespread belief that inflation in the US is out of control; this is incorrect; money supply is being tightly regulated and credit has imploded just like we've been predicting for years, setting the stage for a spectacular deflationary meltdown that has only just begun
it makes little sense to hold gold in a deflationary downturn unless the country whose cash you hold is in risk of default (a rather remote although quite possible scenario for the US); it also makes little sense to hold others' debt as the risk of default rises dramatically in such conditions
thats my take on it; feel free to argue your point from the inflationary side of the argument
Joined: Feb 02, 2006 Posts: 170 Location: Luther, OK
Posted: Mon Jun 30, 2008 5:52 pm Post subject: Re: Commodities Signal Bubble Bursting
I guess the whole issue is inflation or deflation? Typically deflation is the result of a glut. I think you'll see a lot of deflation on things that we have a glut of... hot dog griddles, styrofoam shoes and singing catfish plaques... but the raw resources - energy, industrial metals, and grain - are going to be bid up in the market until demand destruction creates a glut.
Although the U.S. has shed a lot of gasoline demand in 12 months, there's only so far it can go until it runs into the restrictions of its living arrangements.
As far as being at risk of default, I would place the US in a "high risk" category. The national debt - held by foreign central banks in the form of T-bills - is astounding. If a currency begins to look like its going lose a lot of value, those central banks are going to line up at the Fed to cash their checks. Then, you have a hyperinflation -- and god help us all if that turns out to be the case.
So, my position is this : if you need it, it's going to inflate; if you want it, it's going to get cheap. _________________ Nick J. Allen
Hilton, Oklahoma
"The Chinese have many hells. This one is the hell of valueless currency." -- J. Albertson
Posted: Mon Jun 30, 2008 6:01 pm Post subject: Re: Commodities Signal Bubble Bursting
I foresee a relatively long period of stagflation, mainly due to high demand and scarcity of some natural resources. Bank failures may precipitate bouts of deflation, but I do not see deflation being the primary force for long periods of time as it was in the 1920-30s.
Joined: Sep 14, 2004 Posts: 6543 Location: Rural Virginia
Posted: Mon Jun 30, 2008 8:05 pm Post subject: Re: Commodities Signal Bubble Bursting
The commodities "bubble" will never burst because demand is now essentially infinite, thanks to the long-running global development frenzy and soaring population. A huge new consuming infrastructure, that was never there before, is now deeply entrenched. At the same time, supplies of nearly all commodities are crimped, and energy costs, which will never be cheap again, ensure that their extraction, processing, and transport will remain devilishly expensive and get even more expensive.
It isn't a commodities bubble, it's a new paradigm. A new reality that was easily foreseen but more often denied.
Yes, recession will bring demand down around the edges. But no sooner than prices for commodities ease off, demand will again take off, bringing prices to new heights. The cycle will repeat, ever more destructively, until this civilization gets shaken to death.
We've painted ourselves into a corner and there's no way out without getting very messy feet. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Joined: Oct 23, 2004 Posts: 5928 Location: New Jersey
Posted: Mon Jun 30, 2008 9:22 pm Post subject: Re: Commodities Signal Bubble Bursting
After a very brief period of deflation it has been more or less the official policy of the US since 1933 to respond to a financial crisis by creating inflation.
The dollar was devalued 75% in 1933 to stop deflation, and contrary to what some say, it actually worked - that is it did stop deflation but did not stop economic collapse.
Since November 2007, the US dollar - in reality the Fed paper dollar - is now 60% backed by loans to banks/brokers and other securities, mostly derivatives. This is a great debasement on par with the 1933 devaluation.
I give deflation a low probabilty and its likely that we will see a continuation of hyperinflation in commodities as we go forward. _________________ It's already over, now it's just a matter of adjusting.
Joined: May 13, 2005 Posts: 3030 Location: The Urban Village
Posted: Mon Jun 30, 2008 11:42 pm Post subject: Re: Commodities Signal Bubble Bursting
Kingcoal wrote:
Quote:
June 30 (Bloomberg) -- Commodities are heading for their best first half in 35 years. The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.
Posted: Tue Jul 01, 2008 3:00 am Post subject: Re: Commodities Signal Bubble Bursting
Quote:
Current high oil prices are different from previous oil price spikes, Exxon Mobil's chief executive said on Tuesday, and reflect unprecedented global growth.
Rex Tillerson told the World Petroleum Congress the oil industry was cyclical and record oil prices reflected this but "behind this cycle is something new", namely dramatic growth in the developing world.
Tillerson said resource nationalism and re-writing contracts could hinder the industry's ability to keep oil markets properly supplied.
"When energy prices are high the temptation to cut partnerships are high .. but it it's a temptation we must resist," he said.
Joined: Dec 07, 2005 Posts: 1985 Location: Australia
Posted: Tue Jul 01, 2008 3:32 am Post subject: Re: Commodities Signal Bubble Bursting
Quote:
there are alot of gold bugs flying around this nest, but once it sinks in that we are in a deflationary environment there will be no more floor to support such high prices for them
I'll repeat my mantra.
In an inflationary environment a lot ofd stuff goes up in value. PM's are just one asset class among many that benefit.
It is in a deflationary environment when counterparty risk increases that PM's truly shine as safe haven's. And I mean not during normal recessions, but when the markets truly get risky....like now.
The deflationary scenario you are suggesting is where cash is king. That will absolutely NOT apply to US$. If US$ is going down now, how on earths name is it going to strengthen once the financial debacle truly sets in.
There may be a contraction in US$ as a total, but foreigners will shun it and it won't be used for international trading.
Of course some other currencies may and will benefit, but a lot of money that would have been in US$ will have to go elsewhere. _________________ It's not a bailout, it's a buy-in" - Nancy Pelosi
Joined: Sep 14, 2004 Posts: 6543 Location: Rural Virginia
Posted: Tue Jul 01, 2008 4:32 am Post subject: Re: Commodities Signal Bubble Bursting
Who cares about the "price" of gold?? It will be worth something, whereas the dollar will be the worthless paper it is. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Joined: Oct 04, 2007 Posts: 218 Location: North-East USA
Posted: Tue Jul 01, 2008 5:46 am Post subject: Re: Commodities Signal Bubble Bursting
Micki wrote:
The deflationary scenario you are suggesting is where cash is king. That will absolutely NOT apply to US$. If US$ is going down now, how on earths name is it going to strengthen once the financial debacle truly sets in.
There may be a contraction in US$ as a total, but foreigners will shun it and it won't be used for international trading.
Of course some other currencies may and will benefit, but a lot of money that would have been in US$ will have to go elsewhere.
first of all id like to ONCE AGAIN point out the difference between an increase in price of an item due to the increases in price of energy and intermediate goods used to make that item (also highly tied to energy) and the increase in the price of a good due to the increase in money supply which is the definition of inflation
if a jar of peanut butter increases in price $1 this is not inflation; you must look at supply/demand and the increased manufacturing costs; what is happening now in the US is NOT INFLATION, it is higher costs being passed onto the consumers and supply/demand; the effective money supply is SHRINKING FAST due to the utter meltdown of credit which CANNOT result in price inflation; the situation that is developing today is very very familiar to anyone that studied the great depression only it is even more serious and large-scale
cash WILL be king; with the destruction of 90% of credit the inflation in prices was stopped cold; now as house prices tumble down every dollar is by default worth more; this is asset deflation; as the housing meltdown works itself fully into the economy other items will go down in price because with no credit around the amount of 'money' (real money + credit) has effectively severely contracted; although the dollar is falling in terms relative to other currencies it is strengthening in relation to itself; consumer demand in the US is falling hard, and the printing presses are NOT being run, which means cash is king because there's nothing else left
asset prices are going to decrease for everything; margins on all non-food and non-essential food items are going to get slaughtered like they already are; this will lead to very low corporate profits and numerous bancrupcies due to the inability to compete in such a low-margin environment profitably; this will lead to more layoffs, even lower house prices, as people can afford to buy less and less stuff
its a vicious cycle which will end in highly deflated commodity prices; and if you think Asia and the ME are going to chug along as briskly as they have with US in the pooper, they wont
this is a global event and noone is getting out of this in the end with anything less than negative GDP growth; some will fair better than others (Russia, KSA and Brazil come to mind) but it is only a question of (short) time now
the dollar is plummeting due to the belief that this will be largely contained to the US; obviously this is not the case; when that will become the mainstream opinion the dollar will rise against other currencies
For best results click on full-size image. Thanks.
You can clearly see that OECD money supply growth is creating excess liquidity that is the precursor of inflationary effects down the road. Also, OECD data excludes BRIC countries, for example, that also have very high levels of money supply growth (and inflation).
_________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Last edited by MrBill on Tue Jul 01, 2008 6:23 am; edited 1 time in total
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