wayneL
VIVA LA LIBERTAD, CARAJO!
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Commodities tipped to collapse
- Thread starter wayneL
- Start date
Porper
Ralph Nelson Elliott
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wayneL said:
:shoot: :shoot:
Only joking Wayne but when anything is in a boom, whether it be the stockmarket, commodity prices or whatever you always get people saying it can't last.I am not saying it will not go through the boom bust scenario, but let's just wait and see.
When the overall direction changes, we can all go short and make even more money that we are now going long.
tech/a
No Ordinary Duck
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Just give the emerging giants a call and let them know.
Better still send them the article.
Development will be rubbing its hands together next year then with such huge savings to be had.
Better still send them the article.
Development will be rubbing its hands together next year then with such huge savings to be had.
wayneL
VIVA LA LIBERTAD, CARAJO!
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BTW
I have no opinion either way really, just posted for interests sake.
I'm with Porper, just trade the trend!
I have no opinion either way really, just posted for interests sake.
I'm with Porper, just trade the trend!
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wayneL said:
wonder if these are the same " FORCASTERS " that advised the Aust Govt to sell it's GOLD reserves @ around POG low
or advised young Johnny to sprout how he had secured the deal with China to contract natural gas in $us at a time when the $au was at a near time LOW
Cheers
Coyotte
I think there is one thing the analysts are missing.
The potential for irrational exuberence in US investors.
Everyone knew that there were no earnings in the tech stocks, but they just kept going up anyway. People convinced themselves that it was a new paradigm.
Now the us investor is focussing on materials and convincing themselves that china will go on forever.
Just wait, the us speculative industry is going to go into absurd overdrive.
I tip copper to tripple in the next nine months, xjo to hit 7000 and then an '87 style collapse.
The potential for irrational exuberence in US investors.
Everyone knew that there were no earnings in the tech stocks, but they just kept going up anyway. People convinced themselves that it was a new paradigm.
Now the us investor is focussing on materials and convincing themselves that china will go on forever.
Just wait, the us speculative industry is going to go into absurd overdrive.
I tip copper to tripple in the next nine months, xjo to hit 7000 and then an '87 style collapse.
michael_selway
Coal & Phosphate, thats it!
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wayneL said:
Market highs prompt crash fears PRINT FRIENDLY EMAIL STORY
PM - Thursday, 27 April , 2006 18:26:00
Reporter: Stephen Long
MARK COLVIN: The stock market has hit record high after record high in recent weeks.
And today, the share price of one of the big four banks, ANZ, hit a new peak after a bumper profit, with many other companies set to follow suit.
There are plenty who think the good times will go on, but some are beginning to argue that too many companies are fully-priced or overpriced.
They fear that, just as in the late 80s, the market is ripe for a fall.
Economics Correspondent Stephen Long.
STEPHEN LONG: Oliver Stone's movie Wall Street has come to symbolise the excesses of the 1980s.
It came out two months after the October '87 stock market crash.
And to Greg Hoffman, Research Director at The Intelligent Investor, the film's opening scenes sound a warning bell about today's market.
GREG HOFFMAN: Lou Mannheim, who's a sort of a crusty old broker, strolls into the office, past all these slickly attired, gung-ho brokers.
(Excerpt from Wall Street)
LOU MANNHEIM: Marvin, Marvin I've got a feeling that we're going to make a killing today.
MARVIN: Oh yeah, where's your machine gun?
GREG HOFFMAN: And he declares that he can't make a buck in this market. He says the country's going to hell faster than when that son-of-a-bitch Roosevelt was around. He says there's too much cheap money sloshing around the world.
(Excerpt from Wall Street.)
LOU MANNHEIM: Jesus, you can't make a buck in this market, the country's going to hell faster than when that son-of-a-bitch Roosevelt was in charge. Too much cheap money sloshing around the world.
GREG HOFFMAN: And we see that as a danger right now. There's an awful lot of cheap money. Australia's Reserve Bank has been printing money at a growth rate of 10 per cent over the past five years, which is a lot faster than our economy's been growing, which means we've got a whole surfeit of extra dollars in the system that need to find a home.
STEPHEN LONG: Since the air wheezed out of the housing bubble, it's been finding a home in the share market, and cheap credit's encouraged speculators to invest with borrowed money.
Margin lending, where people borrow to buy stocks, is a growth industry, with 150,000 active accounts and billions of dollars at play.
Greg Hoffman.
GREG HOFFMAN: Over the past seven years we've seen marginal lending in the country go from approximately $7.2 billion to about $19.9 billion, and as we sit here that figure's probably north of $20 billion.
So there's an awful lot of borrowed money out there in the market. That's money that, if the market would've pulled back, is going to create an awful lot of problems for people.
STEPHEN LONG: Margin lending is money for jam while stock prices are going up, but if there's a big fall it magnifies the losses.
The problem, says Greg Hoffman, is that so many people dismiss the possibility.
GREG HOFFMAN: We've had 15 years of growth in this country, of economic growth. People forget how bad things can get when the economy takes a downturn.
STEPHEN LONG: And it's not just individuals speculating with other people's money.
The past few months has seen a spate of mergers and acquisitions, and most of the predator companies are using debt and shares to buy their targets, just like in the days of Skase and Bond.
GREG HOFFMAN: It's quite reminiscent of the boom times in the late 80s, when we saw a lot of entrepreneurs making aggressive moves with borrowed money, with the bank's money.
We're seeing it around the world, but in Australia, because we're such a resource-based market, I think that the current euphoria is particularly pronounced here.
STEPHEN LONG: The Australian market's nearly doubled in value since March 2003, and risen by a third in the past year alone.
And the stock prices seem to assume that the good times will keep rolling.
Big banks are trading at multiples 43 times higher than their British counterparts, and the price of many other companies only make sense if their earnings keep soaring.
It's not quite Tech Wreck territory, but if the bubble bursts, it could be ugly.
Greg Hoffman.
GREG HOFFMAN: There's a fantastic study by a brilliant American investor called Jeremy Grantham. He runs one of the largest funds management companies in the world called GMO.
And they identified 27 bubbles in the past, and they noted that in every single one of those bubbles, except the latest one, which they believe hasn't played out, they've noticed that prices don't just fall from the boom time top back to the average, or the mean, they actually fall straight through the mean on the downside.
So what you end up with is a situation that goes from extreme exuberance, a boom, quite quickly can turn into the opposite, to a bust and despair and depression.
STEPHEN LONG: In this stock market there's plenty of bulls roaring that now's the time to buy.
But the cautious are pulling back. And like Lou Mannheim in Wall Street, they're warning that there's not too much around that looks like value.
(excerpt from Wall Street)
LOU MANNHEIM: Stick to the fundamentals. That's how IBM and Hilton were built. Good things sometimes take time.
MARK COLVIN: Economics Correspondent Stephen Long reporting, with a little help from Oliver Stone.
http://www.abc.net.au/reslib/200604/r83324_242917.asx
http://www.abc.net.au/pm/content/2006/s1625499.htm
http://www.aireview.com/index.php?act=view&catid=8&id=3827
http://www.smh.com.au/news/BUSINESS/Big-falls-in-major-minerals-Access/2006/05/01/1146335639645.html
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Today's revamped daily Aireview covered this.
Don't have the link, but the likes of BHP does actually do mining, is very profitable, pays good div's and is only one of a host of good stocks.
No tech bubble here.
A pullback is always on the cards tho.
Don't have the link, but the likes of BHP does actually do mining, is very profitable, pays good div's and is only one of a host of good stocks.
No tech bubble here.
A pullback is always on the cards tho.
wayneL
VIVA LA LIBERTAD, CARAJO!
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phoenixrising said:
Just being devils Advocate...
The likes of BHP might not be bubble priced based on current commodity prices.
But it could be that the underlying commodities themselves are in a bubble situation.
A substantial cut in the price of the underlying commodities will most certainly pull the rug from under the likes of BHP et al.
Cheers
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Poor old Greg Hoffman from the 'intelligent investor' must be kicking himself. I subscibed for a while, but the tips were shocking. Their biggest mistake though was calling the resource boom a bubble about 2 years ago. They may have done OK since then, I don't know.
Julia
In Memoriam
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The Once-ler said:
Not imo, they haven't, Once-ler. My one year subscription is about to end and I definitely won't be renewing it. Haven't followed a single one of their suggestions and thank goodness for that.
Julia
michael_selway
Coal & Phosphate, thats it!
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Fresh surge in commodity prices raises fears of unsustainable speculative bubble
By Philip Thornton, Economics Correspondent
Published: 03 May 2006
Fears of an unsustainable bubble in commodity prices were fuelled yesterday after key industrial metals such as copper and zinc surged amid thin trading.
The copper price leapt more than 3 per cent in London as traders returning from the Bank Holiday rushed to catch up with a strong increase in New York on Monday.
It jumped by $235, or 3.4 per cent, to $7,235 a tonne compared with Friday's close. Zinc rose $135, or 4.3 per cent, to $3,310 a ton, within sight of the record of $3,445 hit last month.
The increases were scored against very thin trading in the absence of buying from China and Japan, the major consuming nations that begin week-long holidays this week.
"If the natural buyers go away you would expect the market to come off a bit but it's not happening - it shows you that it's a financial market, not a market between physical sellers and physical buyers," one fund manager said.
The International Wrought Copper Council (IWCC), a trade association for copper users, has written to the Financial Services Authority and the London Metal Exchange (LME) warning about the increasing role of speculators.
Simon Payton, its secretary general, said the price had been driven up by a "feeding frenzy" by hedge funds. "It may be great for the producers but we feel that a market built on speculation leaves tremendous problems for out side of the industry," he said.
"The margins on metal is straightforward, so at $3,000 a tonne, it is just about bearable but $7,500 a tonne raises serious issues."
The LME refused to discuss either its conversation with the IWCC or the reasons for the rise in prices. A spokesman said: "The market is operated in an orderly and transparent fashion and we have mechanisms in place to make sure that that is the case."
The copper market is prone to speculation as it is essentially a fast-moving financial market placed on top of a physical market with considerable lags between the mine and the open market.
Last winter, copper prices surged to a then-sedate $4,115 a tonne on rumours that a Chinese state copper trader had taken out a huge bet that prices were set to fall - and then went missing when prices soared 30 per cent.
However, analysts believe commodities are being driven by fundamental factors. On the one hand, supply is being held back by a number of constraints. On the other, the meteoric growth in countries such as China, India, Brazil and Russia - the foursome dubbed the BRICs by Goldman Sachs - is driving demand.
As Barclays Capital said in its recent forecast update: "Very few natural resource companies possess either the opportunities or capabilities to swiftly raise their output to keep abreast of the sustained move up in demand growth."
A survey by Barclays of 200 of its investor clients, including banks, pension funds, mutual funds and hedge funds, showed a massive shift into commodities. While more than two-thirds had no position in commodities at the end of 2004, the same proportion forecast that they would hold at least 6 per cent of the portfolio in these physical assets.
Whether this is speculation or sensible investment is open to debate but the figures appear to show that even conventional investors have woken up to the fundamental forces driving the price.
With the US equity market posting a 6 per cent gain in 2005 and US bonds rising 7.8 per cent, according to ABN Amro, committed commodity investors look wise.
There was fresh evidence of strong demand for copper on Monday from figures showing that US spending on construction rose twice as much as forecast in March, and a snapshot survey of the industry showed hefty expansion in April.
The metal is used in infrastructure projects for electrical wiring and piping. Copper also goes into a wide range of manufactured export goods such as fridges, computers and mobile phones.
Copper had gained 59 per cent this year and zinc, used as an anti-corrosive coating in galvanised steel production, had jumped 66 per cent.
Even the gold price, which hovered below the record of $661 an ounce set last week, is being driven by fundamental factors, analysts said.
Ross Norman, a director of thebulliondesk.com, said: "There is always a danger in saying that 'things are different this time' but there are some fairly compelling reasons that we are seeing a once-in-a-century, or perhaps even longer, rise in demand for resources - perhaps since the Industrial Revolution."
He said that while issues such as rising inflation and geopolitical tensions had helped push up prices, it was easy to overlook the mismatch between supply and demand.
Production in South Africa is at its lowest since 1924, development of new mines is being slowed by new social regulations while Latin American governments are turning increasingly nationalistic towards their natural resources.
On the demand side, there are signs that investment and pension funds are looking to increase their positions. At the same time, demand has been spurred by the creation of exchange traded funds that allow investors to buy almost directly into gold. On top of that, the creation of exchanges in places such as India and Dubai has increased the ease of investing.
Mr Norman said the ratio of the oil price per barrel to the gold price per ounce - traditionally between 13 to 15 - showed that gold could be worth $950 an ounce.
"Gold has underperformed relative to other commodities and is playing catch-up," he said. "There are lot of people looking to get in at the bottom whenever it falls, which shows the character of the market."
The role of speculators has also been a matter of heated debate between consumers and producers in the oil market. Crude prices have surged seven-fold, from below $10 a barrel during the 1998 Asia crisis to almost $75 a barrel in recent days.
Western countries have blamed Opec, the producers' cartel, for withholding supply and being opaque about the volume of reserves and production. In return, Opec states have blamed the high and volatile oil price on hedge funds.
Strong global growth, especially in China, has led to a surge in demand for the "black gold". Meanwhile, the slump in prices at the end of the last century provided little incentive for the investment in exploration and refining, creating supply problems now.
On top of this, growing tension between the UN Security Council and Iran over the regional superpower's nuclear ambitions and mounting civil unrest in Nigeria has raised concerns over supply disruptions.
Mohammad Hadi Nejad-Hosseinian, Iran's deputy oil minister, raised the temperature further yesterday, saying there was "some possibility" of a US attack on his country. He said prices could hit $100 a barrel by the winter.
US oil rose 50 cents to $74.20 a barrel, while London Brent crude gained 21 cents to $74.10 yesterday.
Don't blame us for what is happening, say hedge funds
The hedge fund industry looked to pour cold water yesterday over a growing chorus of malcontents blaming it for the "super spike" in the price of commodities.
A letter from the International Wrought Copper Council to the Financial Services Authority and the London Metal Exchange claimed speculators were driving prices to levels that no longer reflect supply and demand.
The trade body echoed the sentiment of Lord Browne of Madingley, the chief executive of BP, who last week decried hedge funds and speculators as the engine driving soaring oil prices.
He said: "The increase in prices has not been driven by the fundamentals of supply and demand. It is the case that the price of oil has gone up while nothing has changed physically."
BP's head of supply and trading, Vivienne Cox, said trading in oil commodities by hedge funds had increased tenfold over the past five years. Certainly, the hedge fund industry is booming and managers are increasingly active in commodity markets, which have proved extraordinarily profitable for a handful of funds, both here and in America.
In recent months, the UK funds Armajaro Holdings, Winton Capital and Red Kite Management were among those to have done nicely from winning bets on copper alone.
But the hedge fund industry insisted that commodity prices were being driven by a range of factors - an increasing diversification into alternative assets by the traditional big investors; the voracious appetite for raw materials from China, Japan and India; low stockpiles; disruptions to production - and not simply speculation.
Fred Demler, who manages the base metals desk for Man Financial, said: "Fundamentals are driving prices. There's a view that we are in a commodities 'super cycle'. Sure, the hedge fund community has grown, but 95 per cent of hedge funds have no exposure to commodities."
Commodity markets were too big and too liquid to be cornered by any single class of investor, hedge fund managers said.
Gary Parkinson
http://news.independent.co.uk/business/analysis_and_features/article361612.ece
By Philip Thornton, Economics Correspondent
Published: 03 May 2006
Fears of an unsustainable bubble in commodity prices were fuelled yesterday after key industrial metals such as copper and zinc surged amid thin trading.
The copper price leapt more than 3 per cent in London as traders returning from the Bank Holiday rushed to catch up with a strong increase in New York on Monday.
It jumped by $235, or 3.4 per cent, to $7,235 a tonne compared with Friday's close. Zinc rose $135, or 4.3 per cent, to $3,310 a ton, within sight of the record of $3,445 hit last month.
The increases were scored against very thin trading in the absence of buying from China and Japan, the major consuming nations that begin week-long holidays this week.
"If the natural buyers go away you would expect the market to come off a bit but it's not happening - it shows you that it's a financial market, not a market between physical sellers and physical buyers," one fund manager said.
The International Wrought Copper Council (IWCC), a trade association for copper users, has written to the Financial Services Authority and the London Metal Exchange (LME) warning about the increasing role of speculators.
Simon Payton, its secretary general, said the price had been driven up by a "feeding frenzy" by hedge funds. "It may be great for the producers but we feel that a market built on speculation leaves tremendous problems for out side of the industry," he said.
"The margins on metal is straightforward, so at $3,000 a tonne, it is just about bearable but $7,500 a tonne raises serious issues."
The LME refused to discuss either its conversation with the IWCC or the reasons for the rise in prices. A spokesman said: "The market is operated in an orderly and transparent fashion and we have mechanisms in place to make sure that that is the case."
The copper market is prone to speculation as it is essentially a fast-moving financial market placed on top of a physical market with considerable lags between the mine and the open market.
Last winter, copper prices surged to a then-sedate $4,115 a tonne on rumours that a Chinese state copper trader had taken out a huge bet that prices were set to fall - and then went missing when prices soared 30 per cent.
However, analysts believe commodities are being driven by fundamental factors. On the one hand, supply is being held back by a number of constraints. On the other, the meteoric growth in countries such as China, India, Brazil and Russia - the foursome dubbed the BRICs by Goldman Sachs - is driving demand.
As Barclays Capital said in its recent forecast update: "Very few natural resource companies possess either the opportunities or capabilities to swiftly raise their output to keep abreast of the sustained move up in demand growth."
A survey by Barclays of 200 of its investor clients, including banks, pension funds, mutual funds and hedge funds, showed a massive shift into commodities. While more than two-thirds had no position in commodities at the end of 2004, the same proportion forecast that they would hold at least 6 per cent of the portfolio in these physical assets.
Whether this is speculation or sensible investment is open to debate but the figures appear to show that even conventional investors have woken up to the fundamental forces driving the price.
With the US equity market posting a 6 per cent gain in 2005 and US bonds rising 7.8 per cent, according to ABN Amro, committed commodity investors look wise.
There was fresh evidence of strong demand for copper on Monday from figures showing that US spending on construction rose twice as much as forecast in March, and a snapshot survey of the industry showed hefty expansion in April.
The metal is used in infrastructure projects for electrical wiring and piping. Copper also goes into a wide range of manufactured export goods such as fridges, computers and mobile phones.
Copper had gained 59 per cent this year and zinc, used as an anti-corrosive coating in galvanised steel production, had jumped 66 per cent.
Even the gold price, which hovered below the record of $661 an ounce set last week, is being driven by fundamental factors, analysts said.
Ross Norman, a director of thebulliondesk.com, said: "There is always a danger in saying that 'things are different this time' but there are some fairly compelling reasons that we are seeing a once-in-a-century, or perhaps even longer, rise in demand for resources - perhaps since the Industrial Revolution."
He said that while issues such as rising inflation and geopolitical tensions had helped push up prices, it was easy to overlook the mismatch between supply and demand.
Production in South Africa is at its lowest since 1924, development of new mines is being slowed by new social regulations while Latin American governments are turning increasingly nationalistic towards their natural resources.
On the demand side, there are signs that investment and pension funds are looking to increase their positions. At the same time, demand has been spurred by the creation of exchange traded funds that allow investors to buy almost directly into gold. On top of that, the creation of exchanges in places such as India and Dubai has increased the ease of investing.
Mr Norman said the ratio of the oil price per barrel to the gold price per ounce - traditionally between 13 to 15 - showed that gold could be worth $950 an ounce.
"Gold has underperformed relative to other commodities and is playing catch-up," he said. "There are lot of people looking to get in at the bottom whenever it falls, which shows the character of the market."
The role of speculators has also been a matter of heated debate between consumers and producers in the oil market. Crude prices have surged seven-fold, from below $10 a barrel during the 1998 Asia crisis to almost $75 a barrel in recent days.
Western countries have blamed Opec, the producers' cartel, for withholding supply and being opaque about the volume of reserves and production. In return, Opec states have blamed the high and volatile oil price on hedge funds.
Strong global growth, especially in China, has led to a surge in demand for the "black gold". Meanwhile, the slump in prices at the end of the last century provided little incentive for the investment in exploration and refining, creating supply problems now.
On top of this, growing tension between the UN Security Council and Iran over the regional superpower's nuclear ambitions and mounting civil unrest in Nigeria has raised concerns over supply disruptions.
Mohammad Hadi Nejad-Hosseinian, Iran's deputy oil minister, raised the temperature further yesterday, saying there was "some possibility" of a US attack on his country. He said prices could hit $100 a barrel by the winter.
US oil rose 50 cents to $74.20 a barrel, while London Brent crude gained 21 cents to $74.10 yesterday.
Don't blame us for what is happening, say hedge funds
The hedge fund industry looked to pour cold water yesterday over a growing chorus of malcontents blaming it for the "super spike" in the price of commodities.
A letter from the International Wrought Copper Council to the Financial Services Authority and the London Metal Exchange claimed speculators were driving prices to levels that no longer reflect supply and demand.
The trade body echoed the sentiment of Lord Browne of Madingley, the chief executive of BP, who last week decried hedge funds and speculators as the engine driving soaring oil prices.
He said: "The increase in prices has not been driven by the fundamentals of supply and demand. It is the case that the price of oil has gone up while nothing has changed physically."
BP's head of supply and trading, Vivienne Cox, said trading in oil commodities by hedge funds had increased tenfold over the past five years. Certainly, the hedge fund industry is booming and managers are increasingly active in commodity markets, which have proved extraordinarily profitable for a handful of funds, both here and in America.
In recent months, the UK funds Armajaro Holdings, Winton Capital and Red Kite Management were among those to have done nicely from winning bets on copper alone.
But the hedge fund industry insisted that commodity prices were being driven by a range of factors - an increasing diversification into alternative assets by the traditional big investors; the voracious appetite for raw materials from China, Japan and India; low stockpiles; disruptions to production - and not simply speculation.
Fred Demler, who manages the base metals desk for Man Financial, said: "Fundamentals are driving prices. There's a view that we are in a commodities 'super cycle'. Sure, the hedge fund community has grown, but 95 per cent of hedge funds have no exposure to commodities."
Commodity markets were too big and too liquid to be cornered by any single class of investor, hedge fund managers said.
Gary Parkinson
http://news.independent.co.uk/business/analysis_and_features/article361612.ece
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I'll be blunt.
The market commentators were saying this over a year ago.
At that point the (pension) funds were not too interested in commodities.
They are now.
Funds are moving out of the greenback and into US dollar based commodities because they will continue to rise as the greenback weakens.
This trend of funds accumulating positions in commodities, especially metals, is still warming up.
The fundamentals driving all commodities are very tight and show no sign of weakening.
While market tightness is in place, expect occasional parabolic spikes.
Funds will probably finish their accumulation phase by year's end.
Get out your worry beads in 2007, maybe... but for now the trend is up, volatile and scary!
The market commentators were saying this over a year ago.
At that point the (pension) funds were not too interested in commodities.
They are now.
Funds are moving out of the greenback and into US dollar based commodities because they will continue to rise as the greenback weakens.
This trend of funds accumulating positions in commodities, especially metals, is still warming up.
The fundamentals driving all commodities are very tight and show no sign of weakening.
While market tightness is in place, expect occasional parabolic spikes.
Funds will probably finish their accumulation phase by year's end.
Get out your worry beads in 2007, maybe... but for now the trend is up, volatile and scary!
Access Economics gets the whole situation fundamentally wrong. (1) China, India and other countries need commodities urgently to continue their industrial revolution. There is no way that they are going to stand still, and they have the money to buy what they need as they earn astronomic amounts by selling clothes etc. to the West. (2) Access Economics sees problems on the supply side. And indeed there ARE such problems. But if you have a shortage of supply on the side of the suppliers and a growing demand on the part of those who need the goods, prices can only go in one direction. There simply is no other way. This situation can only come to an end if either demand stops, or supply becomes plentiful, or supply stops altogether. The first two are extremely unlikely for the time being, and although supply is well short of what it needs to be, it is unlikely to collapse entirely. One has to agree, of course, that the supply problems are serious, but so long as there is any supply at all and the demand is there to meet it, money will be made by those supplying. OTHER FACTOR ALTOGETHER: there is a psychological problem behind such over-negative forecasts. People have difficulty taking in the magnitude of a disaster, but also to take in the magnitude of its opposite. This boom, for once, is for real, like a few others in history. It's not a boom artificially created by cheats like Bond and Chase, nor by conjurers like dot.com people
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wayneL said:
Agreed Wayne, i don't want to use those famous words "this time it's different". I just see the "Chindia" argument to compelling atm.
I also subscribe to the "bear" theory also, but happy to run with the bulls when on the loose.
A side note, i must have the record for the slowest ton (me and Gillespie)
See if my next is quicker.
Cheers
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nizar said:
Thaks for that Nizar, I hadn't checked that out properly
Cheers
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The Bureau of Labour Statistics, in the compilation of the CPI, overstate by 30% the prices tracked by the CPI. (In the US)
This 30% overstatement mitigates to an uncalculated % the effect of monetary inflation.
Rather, the *inflation* has been redirected.
Has it been redirected into assets?
Housing, Equity?
The surge in commodity prices more accurately represents the level of monetary inflation, as of course the demand for product has risen with the money supply. This traditionally results in *price inflation* as more money chases the same goods, profit margins rise faster than the costs of production. This has not happened. In fact the opposite has happened, price has fallen. Purchasing power has increased. The very antithesis of the definition of inflation.
China, far from being an economic giant, has become the manufacturing base for US and world consumption within the commodity based product market. The price that they can manufacture at is of course an artificial price.
It is a price devoid of ethical costs.
Therefore, should US and world consumption falter, the economic growth of China would crater. Taking steel as an example. Without government subsidy, the steel industry in China would be bankrupt. This is true for many products, where the margins are nonexistent, and no capital expenditure is possible.
This cratering of business in China would nigh on bankrupt the banks that have made the loans to the various industries, and the financial sector could come under extreme pressure.
The revaluation of the Yuan is a very problematic issue. Should the Yuan revalue upwards against the US$, then Chinese goods become more expensive in the US and world, thus dampening demand.........and cratering the Chinese economy whose margins are so thin, that they can only be maintained on huge volume, should the unit costs be spread over lower gross revenues.........disaster.
Should China blow up it's economy, then prices in the West will start to show very high inflation.........as the effects of ethical costs are priced back into the margins.
Therefore the US economy, with it's trade imbalance with China, is in no immediate danger, as China is addicted to US consumption in the same way as the US is addicted to the low price of commodity items from China etc.
You would expect therefore with the removal of liquidity, not a crash in asset prices, but a crash in commodity prices......and, or, an increase in inflation dependant on demand for commodity items, which should equate to the same outcome.
jog on
d998
This 30% overstatement mitigates to an uncalculated % the effect of monetary inflation.
Rather, the *inflation* has been redirected.
Has it been redirected into assets?
Housing, Equity?
The surge in commodity prices more accurately represents the level of monetary inflation, as of course the demand for product has risen with the money supply. This traditionally results in *price inflation* as more money chases the same goods, profit margins rise faster than the costs of production. This has not happened. In fact the opposite has happened, price has fallen. Purchasing power has increased. The very antithesis of the definition of inflation.
China, far from being an economic giant, has become the manufacturing base for US and world consumption within the commodity based product market. The price that they can manufacture at is of course an artificial price.
It is a price devoid of ethical costs.
Therefore, should US and world consumption falter, the economic growth of China would crater. Taking steel as an example. Without government subsidy, the steel industry in China would be bankrupt. This is true for many products, where the margins are nonexistent, and no capital expenditure is possible.
This cratering of business in China would nigh on bankrupt the banks that have made the loans to the various industries, and the financial sector could come under extreme pressure.
The revaluation of the Yuan is a very problematic issue. Should the Yuan revalue upwards against the US$, then Chinese goods become more expensive in the US and world, thus dampening demand.........and cratering the Chinese economy whose margins are so thin, that they can only be maintained on huge volume, should the unit costs be spread over lower gross revenues.........disaster.
Should China blow up it's economy, then prices in the West will start to show very high inflation.........as the effects of ethical costs are priced back into the margins.
Therefore the US economy, with it's trade imbalance with China, is in no immediate danger, as China is addicted to US consumption in the same way as the US is addicted to the low price of commodity items from China etc.
You would expect therefore with the removal of liquidity, not a crash in asset prices, but a crash in commodity prices......and, or, an increase in inflation dependant on demand for commodity items, which should equate to the same outcome.
jog on
d998
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True.ducati916 said:
And just as the US has printed money willy nilly, so too could the Chinese.
With an exception: China does not have the debt problems of the US in printing money as its current account balance is around 70 billion (US$) in the black (the US is $225 billion in the red).
I don't know what China's national debt is, but US national debt is over $9 trillion and someone needs to pay the interest on that.
Wouldn't it be ironic if China just picked up "liquidity" ball dropped by the US and played the same game they did for another 50 years.
In any case, I am hoping for a decent correction soon as it will present an excellent buying opportunity: Another few percentage points down would do the trick.
The rebound will quickly recover all losses and launch higher again.
There is nothing wrong with the global economy right now, so with commodity supply constraints and demand unmet, higher prices are here to stay a lot longer.
