Commodities tipped to collapse

[wayneL]

Let's examine the scenario for corn.
Corn can of course be consumed as an agricultural commodity.
Also, corn & sugar cane can be processed into bio-fuels, [ethanol]
Therefore with increasing financial viability of ethanol as a fuel source due to high oil prices, we have a bullmarket in sugar & corn.

Yes,

The dynamics in the grain markets are totally different, and cannot be used as a barometer for general economic activity. You have factors such as ethanol, drought, too much rain, not enough or too much acreage planted, disease, pestilence etc etc

 

[Kauri]

Good grief!
The volatility of gold has been tremendous.
One winning trade to the long side says absolutely nothing about anything.

Odds are derivatives of probability.
Thus total nonsense.

jog on
d998

Most foreign governments have a large stake in maintaining the US trade deficit, and thus, a strong dollar. Thus Central banks keep accumulating dollars.

The practice of buying dollars for this purpose is reinforced by a further very important consideration, and that is the ever increasing needs of the worlds markets to transact in a single currency.

That currency is the US$.
Once a currency achieves this status, it is very difficult to unseat the King.
Currently, the US$ accounts for 88.7% of all transactions. This drives the requirement for an ever expanding supply of dollars [read increased demand] thus maintaining the dollar strength.

Thus in this context, what does that say about Gold?

jog on
d998

If however you feel the Bear case has some validity, you will decrease, avoid, or accrue short postions to commodities

.


One long trade of course means nothing, the point is that had I held one of your many opinions ( volatile, bearish?? maybe just bearishly volatile??) there would have been no trade, but hey, I could have talked up a storm justifying why taking a trade was unwise.

 

[ducati916]

Well, if many commodities are off their highs, logically, some are setting new ones. It cannot be any other way. What should that tell you?

Logic, is a component of philosophy, that adheres to erudite argument.
The highlighted section illustrates a logical fallacy.
This is the case, as, should one commodity be off a high, it is not a 100% correlation that another is setting a new high.

It tells me that you are extremely confused, and confused young men lose money in the financial markets.

jog on
d998

 

[chops_a_must]

Logic, is a component of philosophy, that adheres to erudite argument.
The highlighted section illustrates a logical fallacy.
This is the case, as, should one commodity be off a high, it is not a 100% correlation that another is setting a new high.

It tells me that you are extremely confused, and confused young men lose money in the financial markets.

jog on
d998

No, I was exploiting a gap in your language.

 

[ducati916]

One long trade of course means nothing, the point is that had I held one of your many opinions ( volatile, bearish?? maybe just bearishly volatile??) there would have been no trade, but hey, I could have talked up a storm justifying why taking a trade was unwise.

Possibly you are long red wine?
Really get a grip of the context if you wish to quote posts.

jog on
d998

 

[ducati916]

No, I was exploiting a gap in your language.

Same rejoinder, if you wish to quote, leave the entire quote for context;

The economic slowdown is in this quarters figures.
You will note that many commodities are off their highs.
What should that tell you?

Better learn to read first son.
jog on
d998

 

[Kauri]

Possibly you are long red wine?
Really get a grip of the context if you wish to quote posts.

jog on
d998

Please explain in your inimitable style without resorting to childish comments. Or not, but do try to stay on the subject.

 

[chops_a_must]

Same rejoinder, if you wish to quote, leave the entire quote for context;



Better learn to read first son.
jog on
d998

"Many" does not equal "all".

 

[fleathedog]

I am personally undecided in commodities for 2007. Of course it will depend on China and the US. But I have 2 ideas about where they could go (a bull and a bear case) and was wondering if anyone had any thoughts:

Bear case - pretty straightforward. The US goes into recession or at least slow growth (depending on how hard Mr Bernanke wants to run the presses) dragging Chinese growth down, commodities demand falls etc.

Bull case - US goes into a recession (it couldn't keep going could it!!!), BUT, the Chinese allow their currency to appreciate, allowing them to buy a lot more oil, copper, zinc etc at a relatively cheaper price.

I'd love to get stuck into the vast amounts of data on these matter but don't have the time so some more informed opionions would be appreciated.

Given my indecision i'm staying out of base metals, but there are some ripper bargains out there in base metals even on some modest base metal corrections so I'd love to buy in... I have a feeling though if my bear thesis is right that the correction will be pretty savage. And it seems choosing which commodities to go for is going to be the key.

Good luck all!

 

[rederob]

"Many" does not equal "all".

Chops
Ducati may not understand what you mean.
I suggest at least 3 paragraphs, ideally including the word nonsense a few times, and economics 101 as well.

I generally will avoid a thread that ducati is posting in unless I want a good laugh.

People who use latin, philosophy, economics and other erudite material in posts are clearly superior beings and I think we should appreciate them for what they bring to us.

I learned a long time ago about what should be cut, and paste.

 

[Sean K]

I am sitting on the fence.

In the short term, I actually think a lot depends on a US housing soft landing. If things cool and not freeze, then US may stay bouyant, and Chindiapan will continue to grow, therefore keeping demand up, until supply catches. Maybe 5 more years. If US housing crashes, then commods have just began their decline.

 

[chops_a_must]

Chops
Ducati may not understand what you mean.
I suggest at least 3 paragraphs, ideally including the word nonsense a few times, and economics 101 as well.

I generally will avoid a thread that ducati is posting in unless I want a good laugh.

People who use latin, philosophy, economics and other erudite material in posts are clearly superior beings and I think we should appreciate them for what they bring to us.

I learned a long time ago about what should be cut, and paste.

LOL!

He's not using philosophy though, he's just a sophist. There's a difference.

 

[wayneL]

<mod hat on>Folks lets leave the personal taunts out of what is a really good discussion.</mod hat off>

Thanks

 

[Kauri]

Kennas,
Best way to be for mine , the Great Gold Bear since the $730 top has actually given $304 total of possible bearish trades and $210 total (to date) of possible bullish trades. I find it more profitable to trade what I actually see in front of me rather than what my or others intellectual opinion says I should see.

 

[rederob]

I am sitting on the fence.

In the short term, I actually think a lot depends on a US housing soft landing. If things cool and not freeze, then US may stay bouyant, and Chindiapan will continue to grow, therefore keeping demand up, until supply catches. Maybe 5 more years. If US housing crashes, then commods have just began their decline.

Kennas
US housing will significantly impact copper, slightly impact aluminium, and have little "fundamental" effect on the other base metals.
The general disconnect of zinc/lead with copper occurred recently when zinc went into backwardation. However, from time to time expect copper's pull to have an influence, albeit not the extent it formerly had.
As for the duration of this commodity bull, I expect it to be fully generational - ie at least 20 years. Within that period there will be cycles of oversupply and undersupply that influence specific metals, and occasionally the complex.
Those with Canute-like views that believe GDP is an arbiter of so many things, including metals prices, need to take care if they use those same principles to trade in the markets over the longer term. Short term traders, perhaps like Kauri, can be successful irrespective of their general knowledge of the market.
My average "holding period" for an equity is around 2 years, although my core holdings are around double that. So when I put money into the market, I do it based on a rather long term view.
I suffer no delusions about a prospect of getting things wrong, or the market changing on a sixpence. However, the probability of market calamity near term is exceptionally low, so investing now is relatively safe.
Does this mean that commodities are equally safe?
I don't know.
I do know that medium term prospects for some base metals is exceptionally good. That is, I expect nickel and zinc and lead will hit new highs, with the latter 2 metals likely to outperform the others.
Additionally, in the short term I expect copper will do an about turn and head up to $8000 again. However, unless Chinese demand perks up a lot more, in the medium term I see consolidation occurring, rather than record highs being reclaimed. Reversal of US housing trends would alter that and give a significant boost to copper's fortunes.
Moving away from the metals, and onto the equities, and we have a different game again.
Looking at RIO and BHP or even OXR and you would have to wonder whether the commodity bull had pulled up stumps and knocked off for the day.
Then you look at some zinc and uranium-based equities - the PDNs and ZFXs of the world - and you begin to see that we have cycles within cycles.
Some months ago I thought I would never invest in the BHPs of the world, again. But as I do the sums, I discover the average received prices of almost every commodity they produce (except oil) is presently higher now than for the corresponding (financial year to date) period 12 months ago. Accordingly, I am very likely to buy back into BHP on any price weakness.
As I am a long term investor, my preference for BHP is strongly in the camp of a commodity market that is unlikely to disintegrate any time soon, and has the capacity to ride through a substantial correction: Perhaps even a series of commodity-specific corrections that have an insignificant effect on BHP's true bottom line.

 

[Sean K]

Kennas
US housing will significantly impact copper, slightly impact aluminium, and have little "fundamental" effect on the other base metals.
The general disconnect of zinc/lead with copper occurred recently when zinc went into backwardation. However, from time to time expect copper's pull to have an influence, albeit not the extent it formerly had.
As for the duration of this commodity bull, I expect it to be fully generational - ie at least 20 years. Within that period there will be cycles of oversupply and undersupply that influence specific metals, and occasionally the complex.
Those with Canute-like views that believe GDP is an arbiter of so many things, including metals prices, need to take care if they use those same principles to trade in the markets over the longer term. Short term traders, perhaps like Kauri, can be successful irrespective of their general knowledge of the market.
My average "holding period" for an equity is around 2 years, although my core holdings are around double that. So when I put money into the market, I do it based on a rather long term view.
I suffer no delusions about a prospect of getting things wrong, or the market changing on a sixpence. However, the probability of market calamity near term is exceptionally low, so investing now is relatively safe.
Does this mean that commodities are equally safe?
I don't know.
I do know that medium term prospects for some base metals is exceptionally good. That is, I expect nickel and zinc and lead will hit new highs, with the latter 2 metals likely to outperform the others.
Additionally, in the short term I expect copper will do an about turn and head up to $8000 again. However, unless Chinese demand perks up a lot more, in the medium term I see consolidation occurring, rather than record highs being reclaimed. Reversal of US housing trends would alter that and give a significant boost to copper's fortunes.
Moving away from the metals, and onto the equities, and we have a different game again.
Looking at RIO and BHP or even OXR and you would have to wonder whether the commodity bull had pulled up stumps and knocked off for the day.
Then you look at some zinc and uranium-based equities - the PDNs and ZFXs of the world - and you begin to see that we have cycles within cycles.
Some months ago I thought I would never invest in the BHPs of the world, again. But as I do the sums, I discover the average received prices of almost every commodity they produce (except oil) is presently higher now than for the corresponding (financial year to date) period 12 months ago. Accordingly, I am very likely to buy back into BHP on any price weakness.
As I am a long term investor, my preference for BHP is strongly in the camp of a commodity market that is unlikely to disintegrate any time soon, and has the capacity to ride through a substantial correction: Perhaps even a series of commodity-specific corrections that have an insignificant effect on BHP's true bottom line.

Great commentary mate. Thanks. Will be back at you on this. Must go to bed. Rach is home.

 

[Julia]

Kennas
US housing will significantly impact copper, slightly impact aluminium, and have little "fundamental" effect on the other base metals.
The general disconnect of zinc/lead with copper occurred recently when zinc went into backwardation. However, from time to time expect copper's pull to have an influence, albeit not the extent it formerly had.
As for the duration of this commodity bull, I expect it to be fully generational - ie at least 20 years. Within that period there will be cycles of oversupply and undersupply that influence specific metals, and occasionally the complex.
Those with Canute-like views that believe GDP is an arbiter of so many things, including metals prices, need to take care if they use those same principles to trade in the markets over the longer term. Short term traders, perhaps like Kauri, can be successful irrespective of their general knowledge of the market.
My average "holding period" for an equity is around 2 years, although my core holdings are around double that. So when I put money into the market, I do it based on a rather long term view.
I suffer no delusions about a prospect of getting things wrong, or the market changing on a sixpence. However, the probability of market calamity near term is exceptionally low, so investing now is relatively safe.
Does this mean that commodities are equally safe?
I don't know.
I do know that medium term prospects for some base metals is exceptionally good. That is, I expect nickel and zinc and lead will hit new highs, with the latter 2 metals likely to outperform the others.
Additionally, in the short term I expect copper will do an about turn and head up to $8000 again. However, unless Chinese demand perks up a lot more, in the medium term I see consolidation occurring, rather than record highs being reclaimed. Reversal of US housing trends would alter that and give a significant boost to copper's fortunes.
Moving away from the metals, and onto the equities, and we have a different game again.
Looking at RIO and BHP or even OXR and you would have to wonder whether the commodity bull had pulled up stumps and knocked off for the day.
Then you look at some zinc and uranium-based equities - the PDNs and ZFXs of the world - and you begin to see that we have cycles within cycles.
Some months ago I thought I would never invest in the BHPs of the world, again. But as I do the sums, I discover the average received prices of almost every commodity they produce (except oil) is presently higher now than for the corresponding (financial year to date) period 12 months ago. Accordingly, I am very likely to buy back into BHP on any price weakness.
As I am a long term investor, my preference for BHP is strongly in the camp of a commodity market that is unlikely to disintegrate any time soon, and has the capacity to ride through a substantial correction: Perhaps even a series of commodity-specific corrections that have an insignificant effect on BHP's true bottom line.

A really helpful overview, Rederob. Thank you.

Julia

 

[markrmau]

http://www.smh.com.au/news/business/consumer-revolution-in-asia/2006/11/23/1163871545419.html

The rise of non-us consumers is an important development. This is the bigger picture to focus on.

 

[wayneL]

There seems to be some cognitive dissonance with this whole Asia business.

On the one hand it's:

OH NO! Golbal warming! Rising sea levels! Ozone holes! We're all doomed and it because of human impact. Millions will die, starve, get washed away!

On the other hand it's:

OH YES! Chindia is growing, they're all going to buy cars, computers, airconditioners, build McMansions and we're going to get rich selling commodities to them.

********************************************

Can anyone see the conflict here??

 

[markrmau]

It is morally bankrupt to sit amongst the wealth (assetwise and healthwise) that the western nations have built up (primarily through consumption of the earth's natural resources) and then to deny other people the opportunity to lift themselves out of poverty.

So IF it is true that further consumption will cause long term damage to the earth, we have two possible 'moral' solutions:

1. Drastically reduce all consumption, and for the rich nations to share thier wealth with poor nations. Because of the population imbalance, this would probably dilute everyones wealth to about 10% of thier current holdings.

2. Do nothing and sort out the problems of earth as they occur.

I think the 2nd option would result in the most efficient allocation of capital and resources.