Commodities tipped to collapse

rederob · 30 November 2006

dhukka said:
Rederob,

Your recent purchases are proof that you have the courage of your convictions and nothing more. My point is that the Japanese IP numbers aren't as bullish as they might look on the surface. Here is another article from the FT on the same story, granted the IP numbers were strong however note the last paragraph "The strong figures could be a reflection of a deliberate build-up of inventories ahead of the year-end, economists said. This could backfire if US and or domestic demand does not materialise as expected, leading production to fall in the new year."

dhukka
I have employed these "convictions" for some years, and also had the courage to continue to debunk the doom and gloom merchants for the past few years.
I could hide behind dozens of cut and pastes from article after article to "represent" my view. But I prefer to simply state what I believe is most likely, given my reading of the market, and say what I am doing in response to it.
I believe that degree of transparency allows my record to be accessible to anyone who wants to throw it back at me when I am caught out badly by the market.
I think we all know that one month's data is pretty "iffy", and that we need to get confirmation as time goes by. Maybe Japan's IP was aberrant last month, maybe not.
I won't have any problem waiting another few months, and then a few more.
The issue of "inventory build" specifically relates to IT: I don't think it will impact to any degree on hard commodities.
Some interesting facts and figures that tend to debunk the perceived importance of the US to global market actions:
http://www.moneyweek.com/file/22255/the-commodities-bull-is-alive-and-kicking.html

ducati916 · 1 December 2006

rederob

ducati
Perhaps if you cast your gaze to Japan, Europe, China, Russia and a few other nations you will see media reports that differ markedly from your Reuters aticle.

Of course.
However the case for commodities to this point has revolved around two major points; the bulls, have continually pointed to China as being the driver of commodity prices. I have argued that the US as the largest economy deserves much closer analysis.

China is [in economic terms] the marginal producer [consumer] and prices are set at the margin however, the supply that China produces [that drives their demand] is set by predominantly the US consumer, be it socks or steel.

Therefore, logically, if the US drives the supply curve of the largest marginal producer, that will impact prices. Thus, the reason behind looking at US GDP.

Intrestingly you have introduced Japan & Europe et al.
The US went through a similar episode in the 1980's with the then dominant Japanese economy that created [in Japan] huge asset bubbles in the Nikkei & Real Estate [not to mention art etc]

China is driving [via the US] a commodities bull.
In the same way that the Japanese economy and asset bubbles imploded, can the commodities bubble implode.

The drivers for this implosion are already in place, and they are in the form of price floors across myriad industries.

jog on
d998

chops_a_must · 1 December 2006

ducati916 said:
China is [in economic terms] the marginal producer [consumer] and prices are set at the margin however, the supply that China produces [that drives their demand] is set by predominantly the US consumer, be it socks or steel.

I don't think China can keep up with its own demand.

Do you think the biggest market manipulators and shysters on the planet, i.e. the Carlyle group, would be tripping over themselves if they thought the rug was going out from beneath them? They don't ride waves, they make them, and they want in, big time.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aEgesfHX6ke0&refer=home

ducati916 · 1 December 2006

chops_a_must said:
I don't think China can keep up with its own demand.

Do you think the biggest market manipulators and shysters on the planet, i.e. the Carlyle group, would be tripping over themselves if they thought the rug was going out from beneath them? They don't ride waves, they make them, and they want in, big time.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aEgesfHX6ke0&refer=home

You are horribly confused.
These guy's are a buyout fund.
They make money in a completely different way than retail investors.

Until you understand how they make money, you won't understand their strategy.

jog on
d998
http://grantmacdonald.blog.co.nz/

chops_a_must · 1 December 2006

Nice avoidance of the argument... again.

wayneL · 1 December 2006

chops_a_must said:
Nice avoidance of the argument... again.

As discussed earlier, instos are not immune to entering positions at the top.

The recent tech boom is resplendent with examples of this.

The activities of the Carlyle group mean precisely nothing.

chops_a_must · 1 December 2006

wayneL said:
The activities of the Carlyle group mean precisely nothing.

Not necessarily. Back door deals. Conflict with North Korea, Taiwan and strong links to the Saudis. Sounds like politicial positioning to me.

ducati916 · 1 December 2006

chops_a_must said:
Nice avoidance of the argument... again.

Not at all.
You just do not understand the irrelevance of your post.
These guy's are a Leveraged Buyout Firm, in the same business as Kohlberg Kravis & Roberts, the infamous Barbarians at the Gate

As such, their money is made in a completely different way, viz 4% of asking price in Fee's + disbursements as a special dividend from cash reserves of the business...........all financed via junk.

Assets are then stripped, and debt reduced. The remaining debt is serviced by cash-flow, or not, as the case maybe. The risk is thus transferred to the bond holders.

This of course is simply the tip of the iceberg.

However, none of this has any real applicability to the topic under discussion, save buyout frenzy tends to occur at liquidity highs, for obvious reasons.

jog on
d998
http://grantmacdonald.blog.co.nz/

rederob · 1 December 2006

ducati
If you have got the "drivers" of your collapse worked out, you should have some view on timeframes.

For several years "economists" have badly misjudged this commodity bull. There are probably many reasons, but one is definitely that they have failed to understand the mechanics of raw material markets, or hard commodities as I preder to call them.

My view is that the US becoming increasingly less relevant and it may be possible for the US to go through a "soft landing" in the medium term without impacting on the present commodity bull in the manner you suggest.

ducati916 · 1 December 2006

rederob

My view is that the US becoming increasingly less relevant and it may be possible for the US to go through a "soft landing" in the medium term without impacting on the present commodity bull in the manner you suggest.

You contradict yourself.
If the US is becoming, or is, less relevant, then it matters not whether they have a hard or soft landing.

If they have a soft landing [a real possibility] then it is also possible that the commodity bull may continue............but that argues the US is still very relevant..........see the contradiction?

jog on
d998

rederob · 1 December 2006

ducati916 said:
rederob

You contradict yourself.
If the US is becoming, or is, less relevant, then it matters not whether they have a hard or soft landing.

If they have a soft landing [a real possibility] then it is also possible that the commodity bull may continue............but that argues the US is still very relevant..........see the contradiction?

jog on
d998

Do yourself a favour and read the full sentence ducati.
I wrote a complete sense, and parsing it is not useful.

In each of your posts I continue to note an absence of capacity to state a view that encapsulates this thread's theme.

A moderator has asked me to stop the "bickering" with you.
I simply ask, and continue to ask, that if you have a specific view you enunciate it.

I personally think the notion of a price floors as the driver of commodity prices is drawing a very long bow. But if that's what you reckon, you should have some view on the timeframes that reasonably predicate a decline in commodity prices overall.

The fundamentals of metals suggest to me continued market tightness, with several metals sequentially claiming all time record highs - eg zinc, lead and nickel. If a theme of destocking has been occurring, as many analysts have been suggesting, the real picture of tightness is more extreme than that visible in the numbers: The visible numbers are not close to a teddy bear's picnic.

ducati916 · 2 December 2006

Stocks Falter After Downbeat ISM Report
Friday December 1, 10:44 am ET
By Joe Bel Bruno, AP Business Writer
Wall Street Stumbles As Purchasing Managers Report Slowing in Manufacturing Sector

NEW YORK (AP) -- Wall Street stumbled Friday after a key survey showed that manufacturing activity declined in November and raised concerns that the economy won't be able to achieve a soft landing.
Stocks and the dollar were socked after the Institute for Supply Management said its index on manufacturing fell to 49.5 from 51.2 in October. Economists had been expecting 51.5, while anything under 50 indicates the manufacturing sector is contracting and could prompt the Fed to cut rates.

The weak manufacturing report was seen as an indication that the Federal Reserve overshot the mark in more than two years of interest rate hikes that ended in June. Many on Wall Street believed the Fed would hold interest rates steady at 5.25 percent at its next meeting on Dec. 12.

The dollar, which is supported by higher rates, fell on the prospect of a Fed cut.

Investors will be closely watching speeches by Chicago Fed President Michael Moskow, Richmond Fed President Jeffrey Lacker, and Fed Vice Chairman Donald Kohn during the session. Fed Chairman Ben Bernanke made no comment on current monetary policy or the economic outlook during a speech Friday morning, although on Tuesday he said risks from inflation could further complicate an economy suffering from a general slowdown.

In morning trading, the Dow Jones industrial average fell 37.98, or 0.31 percent, to 12,183.95.

Broader stock indicators also declined. The Standard & Poor's 500 index dropped 5.09, or 0.36 percent, to 1,395.54, and the Nasdaq composite index fell 19.29, or 0.79 percent, to 2,412.48.

Speculation that an interest rate cut looms ahead triggered a rally in the fixed income market. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to an 11-month low of 4.42 percent from 4.46 percent late Thursday.

However, the dollar continued its slide against major currencies. Also hitting the dollar was a Commerce Department report that U.S. construction spending took its biggest tumble in five years during October.

Among Dow components, General Motors Corp. rose 8 cents to $29.31 after a report that financier Kirk Kerkorian dumped his 10 percent stake in the world's largest automaker for more than $800 million. He had about 28 million shares left, which were sold off late Thursday, according to The Wall Street Journal.

H&R Block Inc. declined after the nation's largest tax preparer reported a wider-than-expected loss during the second quarter as its mortgage lending arm continues to lose money. H&R Block fell 28 cents to $23.72.

Home Depot Inc. shares surged $1.40, or 3.7 percent, to $39.37 on speculation the home improvement chain might be an acquisition target by several private equity firms.

jog on
d998

ducati916 · 2 December 2006

rederob

Do yourself a favour and read the full sentence ducati.
I wrote a complete sense, and parsing it is not useful.

Which I did, and unfortunately, you contradict yourself, c'est la vie.

In each of your posts I continue to note an absence of capacity to state a view that encapsulates this thread's theme.

A moderator has asked me to stop the "bickering" with you.
I simply ask, and continue to ask, that if you have a specific view you enunciate it.

I would suggest that even the most challenged simpleton could probably reach a conclusion on my views, or stance on hard commodities, or base metals.........I am bearish, as this definition seems to exclude you.

I too received the same e-mail, I guess there are some sensitive souls who require harmony and a concensus, so that if you fail, you all fail together, somewhat akin to the lemmings.

I personally think the notion of a price floors as the driver of commodity prices is drawing a very long bow. But if that's what you reckon, you should have some view on the timeframes that reasonably predicate a decline in commodity prices overall.

Of course you are entitled to your opinion.
I note a lack of anything resembling a logical, reasoning argument to support your opinion with regards to price floors.

With regards to timeframes, why should I have a strong view, and even if I have a strong view, why should I share it with such an uncouth rascal as yourself? You need to butter me up, stroke my ego, smooth my ruffled feathers...........

The fundamentals of metals suggest to me continued market tightness, with several metals sequentially claiming all time record highs - eg zinc, lead and nickel. If a theme of destocking has been occurring, as many analysts have been suggesting, the real picture of tightness is more extreme than that visible in the numbers: The visible numbers are not close to a teddy bear's picnic.

All conjecture.
But continuing on the theme of pure speculation; with several metals sequentially claiming all time record highs - eg zinc, lead and nickel. does this not suggest caution in such a notoriously cyclical asset class?

If a theme of destocking has been occurring, as many analysts have been suggesting, I am quite willing to accept this as I have no doubt there are numbers regarding inventory that support this assertion; however, those numbers [inventory] will be affected by inventory levels of the producers, and consumer demand...........which currently do not look potentially that healthy.

jog on
d998

chops_a_must · 2 December 2006

ducati916 said:
If a theme of destocking has been occurring, as many analysts have been suggesting, I am quite willing to accept this as I have no doubt there are numbers regarding inventory that support this assertion; however, those numbers [inventory] will be affected by inventory levels of the producers, and consumer demand...........which currently do not look potentially that healthy.

jog on
d998

China is taking in sub standard nickel to make up the short fall.

Manufacturing figures are bad, but we knew that already. I'd say we are in for a correction in copper early next year, what is your guess?

ducati916 · 2 December 2006

chops

From page1

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.

Commodities, gold, copper, you name it have all been suffering from an in-rush of very speculative money. That means that the underlying fundamentals have suffered a dislocation.........thus prices have increased based on two premises;

*that fundamental demand from US/China/Japan/etc will continue to support prices at these and increasing levels +
*speculative money going long in [financial instruments] linked to these commodities.

Therefore, when the underlying fundamental demand from producers starts to falter, thus will the speculators start selling long positions + selling short positions..........the result?

A double whammy, thus quite a brutal correction.

From my post on page12

The herd psychology of markets [behavioural finance] explains in part the attraction of retail several years into a bullmarket.
A measure of this speculative excess is the spread between prices of listed commodities and unlisted commodities

It currently sits at an all time record of 60%+

Therefore I would expect the price of copper to fall.

jog on
d998

rederob · 2 December 2006

ducati916 said:
Therefore I would expect the price of copper to fall.
jog on
d998

I could ask "when", but would get the same answer as always.
I am a natural born market bear.
My whole approach to investing is based on the notion markets fall.
However, before they fall, they must rise.
I take advantage of fundamental price drivers in the commodity market to "pick" what will rise, and buy into the trend using an equity that I am comfortable with.

Of the 6 main base metals - aluminium, copper, nickel, tin, lead and zinc - only copper at present is likely to succumb to significant near term weakness on fundamental grounds.
The principal reason for copper's weakness is the lack of cancellations (and therefore accumulation of warehouse metal) in the US as a result of vehicle manufacturing and housing downturns. Outside the US copper remains relatively firm, with Shanghai warehouses now at their lowest level this year.
Within China, an increased use of scrap copper is maintaining the relative balance of copper supply with demand.
From an historical perspective, with global warehouses holding slightly over 200k tonnes of copper, and the pace of resupply confined to the US, the global "balance" does not give the consumer market much confidence.
In 2007 we will need to see significant concentrate inflows (more so than cathodes) from greenfield sites and brownfield capacity expansions, before we get a clear signal that copper prices will fall substantially.
At present the prognosis is inclined to favour relative price stability at around the $7k/tonne level.

rederob · 2 December 2006

My view is that the US becoming increasingly less relevant and it may be possible for the US to go through a "soft landing" in the medium term without impacting on the present commodity bull in the manner you suggest.

Parsing:
My view = it is my judgement
the US becoming increasingly less relevant = ie, the US is relevant to this consideration, but its degree of relevance is reducing
it may be possible for the US to go through a "soft landing" in the medium term = equally, it may not be. However the assumption contained in this "sense" is that if the US is to go through a soft landing in the medium term then a consequence shall follow
viz;
without impacting on the present commodity bull in the manner you suggest

This latter parsing has 2 components: The first implies we are in a commodity bull (from a long term perspective there is little doubt). The second implies you have a bearish view on commodities and that you place the US as the first domino to fall, as an analogy.

If the fully quoted sense were to contain a "contradiction", it would be obvious as there would be a notable gap in its logic.

ducati suggests a contradiction occurs because he has added a new sense to the quoted statement, viz
"If the US is becoming, or is, less relevant, then it matters not whether they have a hard or soft landing."
This is typical of how ducati presents his responses to posters: Change the sense and argue against the newfound proposition.
If I thought that the commodity bull could sustain itself through a "hard landing in the US", I would have said so.

Logic requires that we can deduce from information provided that something should follow (a deduction) and we could be reasonably certain it was true.
If we could reasonably deduce that there was no difference between a hard and a soft landing, then ducati may have been onto to something (assuming the remainder of the statement required no further deduction).
The average reader jumping off a two story building will have no difficulty differentiating between a hard and soft landing

CanOz · 2 December 2006

http://www.kitco.com/ind/charnock/nov242006.html

chops_a_must · 2 December 2006

rederob said:
Parsing:
My view = it is my judgement
the US becoming increasingly less relevant = ie, the US is relevant to this consideration, but its degree of relevance is reducing
it may be possible for the US to go through a "soft landing" in the medium term = equally, it may not be. However the assumption contained in this "sense" is that if the US is to go through a soft landing in the medium term then a consequence shall follow
viz;
without impacting on the present commodity bull in the manner you suggest

I think what Ducati is overlooking is the shifting of the world economic balance. I have stated before that China is looking to have 50% of the world's manufacturing capacity by 2030. This can only happen by reducing market share from the US.

The US auto sector has been hammered, but all that has happened is that that market share is being taken over by Asian markets. So overall demand for commodities might be a negligible change.

If the US has a rate cut next year, which looks increasingly likely, it will benefit companies such as GM and Ford. Not to mention, put the gold price up.

Dr Doom · 2 December 2006

I would say that there is a general consensus amongst the combatants here that the US will have a large influence on the general direction of the current bull market in commodities, as it should as it is still the largest economy in the world at the moment. It's relevance from the demand side is THE single most important factor in determining the strength of the bull and severity of the coming collapse/correction/blip (and the timing of it).
I think there has been an overemphasis on the importance of China's contribution to the demand equation as China just does not have the systems, mostly financial, to sustain a self sustaining economy if the US economy slows or enters a recession.
China's growth has largely been sustained by the bubble creating liquidity excess in nearly all developed countries, which has fueled bubbles of it's own for example steel production, high rise developments etc.
China's financial system in particular is susceptible due to bad lending practices, typical of peaking markets. Because many of China's producers operate with low profit margins, any sustained reduction in their sales could force many to go bankrupt or put stress on the banking system.
I'm just not convinced the world can rely on China to sustain the commodity bull by itself, should the US enter a recession.
Not to mention the currency manipulation and huge excess of US dollars it holds, which are steadily loosing value with each passing day. A mad scramble for the (US dollar) exits.

Commodities tipped to collapse

rederob

ducati916

chops_a_must

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