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Thread: Pt1 of "This Sucker's Goin' Down"- The Commodity Bubble

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    devsterd1 is offline Cast Iron
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    Default Pt1 of "This Sucker's Goin' Down"- The Commodity Bubble

    I've been wanting to start a thread about the economy worldwide for a while. It's a pretty big issue and I figured most people don't follow it so I thought I'd put as much info out as is reasonable in this format.

    My impetus for finally starting this thread is watching the Hang Seng (Hong Kong) index tumble last night. Oil fell about $5 a barrel in about 8hrs while the index fell almost 1000 pts. I figured the Dow would drop about 500 pts. today, but with computer trading it's hard to tell anymore. The only thing I do know is that overall, every aspect of the world (financial) economy is now an empty shell. From banks to commodities to too much debt everywhere- "This Sucker's Goin' Down". First commodities, then, if it's still there, "Eurogeddon", the third part, if the banking sector still exists in a recognizable form, "International Banking- We Gamble, You Pay, We Stick a Meter on it Anyway".

    First a quick disclaimer.....I'm not an economist, my ex-wife cleaned me out so I'm only spectator in this, and hopefully, I'm probably wrong. Do not look at this as investment advice pertaining to financials, brown rice or ammo. It's not. Just a little information for those who are unable, for whatever reason, to follow the world economy. Take it all with a big grain of salt.


    COMMODITIES. We've discussed this here a lot. I've always tried to point out how commodities have been pretty flat until about 2000 and the passing of the Commodities Futures Trading Act. Previous to that, each commodity was pretty independent in that if one rose for a while it didn't affect the rest. Now commodities rise and fall as a group. The difference is the financialization of commodities. I finally found an article that explains what's going on in plain language. It's by an economist named Randy Wray. It's the best I've seen and really a must read if you want some insight into metal prices and commodities in general. Here's a quote and a link:

    Randy Wray: The Biggest Bubble of All Time

    Randy Wray from the link:

    "Yes, commodity bubbles happen, but eventually reality sets in and brings the price back down to reality. You don’t get 3, 4, and 5 standard deviation events. A four standard deviation price rise falls outside 99.994% of all outcomes—one in 100,000 years; a five standard deviation price rise is about one in 2 million years. That pretty much covers the time since our ancestors beat things with big sticks.

    But wait a minute. The standard deviation of price rises for iron (5), coal, copper, corn and silver (4), sorghum, palladium, and rubber (3.5), flaxseed, palm oil, soybeans, coconut oil, and nickel (3), and so on down through jute, cotton, uranium, tin, zinc, potosh and wool (2) are so unlikely that they quite simply could not have happened. Individually. Together, the likelihood that we’ve got an unlikely boom in almost all of the 33 commodities? All at the same time? Impossible. Cannot happen. Not in the lifetime of our sun, let alone our planet.

    But it did."

    Read it.......

    I'd really like to hear from the European, Australian and Asian members...... and the locals of course.




    Robespierre2012

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    Commodity bubble?

    Priced in Labor, or priced in Credit?
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    dp
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    Interesting reading - thanks for the links.

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    devsterd1 is offline Cast Iron
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    Quote Originally Posted by <jbc> View Post
    Commodity bubble?

    Priced in Labor, or priced in Credit?
    Credit of course. Can't beat 5% down. LOL, great call though. BTW, how's that currency peg goin'?

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    2 million years, bahhhh!! I still beat things with sticks.

    The whole thing is just stupid, you used to get rich by actually making something. The butcher, the baker, the candle stick maker, they all did something.

    Now to get rich, you don't do anything, you get some damn near free money from the fed, gamble it, skim off the profits. Those profits came out of somebodies pocket. And if you lose, your covered, my great grandchildren will pay for it.

    We're pretty screwed.
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    Quote Originally Posted by devsterd1 View Post
    BTW, how's that currency peg goin'?
    Unemployment is up @ 3.7%. There is downward wage pressure, and we have deflation.
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    devsterd1 is offline Cast Iron
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    Quote Originally Posted by <jbc> View Post
    Unemployment is up @ 3.7%. There is downward wage pressure, and we have deflation.
    As soon as the effects of QE2 finish getting through the pipeline we'll be joining you on the deflation front. We've got you beat by 1.6 kilometers on unemployment though, real unemployment/underemployment is somewhere in the village of 16-18%.........
    U...S...A, U...S...A, U...S...A........!

    Pssst....next time you're down at the local bank, look through the accounts and see if the Koch brothers are evading US taxes.

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    Quote Originally Posted by devsterd1 View Post
    ... are evading US taxes.
    Thomas Jefferson believed evading taxes was a moral responsibility of the Citizenry. To wit, "Paying taxes is one way in which otherwise well-meaning people collaborate".

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    Thanks for the link..I've enjoyed Yves blog ever since I came across it while researching the housing crisis.

    "This sucker is going down"..no doubt, it is just a matter of time..it could be anything from the end of BOA to a Greek default.

    If you care to do a little reading..ok.. a lot.. I would suggest Kyklos Productions this economist attempts to explain the reasons behind our financial crisis . If you can stand the economic jargon is is quite illuminating. He also explains why the two mainstream economic theories..stimulus or no stimulus are bound to fail.
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    Mad Machinist is offline Cast Iron
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    Quote Originally Posted by devsterd1 View Post
    As soon as the effects of QE2 finish getting through the pipeline we'll be joining you on the deflation front. We've got you beat by 1.6 kilometers on unemployment though, real unemployment/underemployment is somewhere in the village of 16-18%.........
    U...S...A, U...S...A, U...S...A........!

    Pssst....next time you're down at the local bank, look through the accounts and see if the Koch brothers are evading US taxes.
    This unemployment thing cracks me up. IT IS 100% BULLSHIT. Joy Mining in Franklin PA advertises heavily on the radio and regularly has job fairs looking for machinists, welders, and electricians. So do four, count that FOUR, other big machine shops in the area. A Youngstown OH company that builds package compressors also has ads on the radio every day and also holds job fairs. In fact they just put up a 50,000 sq. ft. addition. My dad is looking for 8 welders and can't fill the positions. The radio ads are on Youngstown AM 570. Tune in on the net in the morning and you'll hear them every morning. Of course these jobs require real skills and the ability to pass a drug test and show up for work every day and do the job. So that leaves out 98% of the population. I guess they should preface the unemployment rate with "16% unemployment for people who worked at McDonalds but then made 80K filling out mortgage applications, selling real estate, etc have no real skills, don't want to go back to McDonalds and can stay on unemployment forever". Then I would buy the 16%.

    And as far as commodities they might come down but but I'd rather be sitting on a pile of cast iron than FRN's. I can't make the iron by pressing "PRINT".

    DOW 1/28/2000 11,722 DOW 9/22/2011 10,733

    Gold 1/28/2000 282.89 Gold 9/22/2011 1745.00

    How's the retire on the 401K plan working out for ya?
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    Quote Originally Posted by Mad Machinist View Post
    This unemployment thing cracks me up. IT IS 100% BULLSHIT. Joy Mining in Franklin PA advertises heavily on the radio and regularly has job fairs looking for machinists, welders, and electricians. So do four, count that FOUR, other big machine shops in the area. A Youngstown OH company that builds package compressors also has ads on the radio every day and also holds job fairs. In fact they just put up a 50,000 sq. ft. addition. My dad is looking for 8 welders and can't fill the positions. The radio ads are on Youngstown AM 570. Tune in on the net in the morning and you'll hear them every morning. Of course these jobs require real skills and the ability to pass a drug test and show up for work every day and do the job. So that leaves out 98% of the population. I guess they should preface the unemployment rate with "16% unemployment for people who worked at McDonalds but then made 80K filling out mortgage applications, selling real estate, etc have no real skills, don't want to go back to McDonalds and can stay on unemployment forever". Then I would buy the 16%.

    And as far as commodities they might come down but but I'd rather be sitting on a pile of cast iron than FRN's. I can't make the iron by pressing "PRINT".

    DOW 1/28/2000 11,722 DOW 9/22/2011 10,733

    Gold 1/28/2000 282.89 Gold 9/22/2011 1745.00

    How's the retire on the 401K plan working out for ya?
    That's all very well, but are they offering a decent living wage, or just crying that they cant get people to work for them whilst offering a pittance in remuneration?

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    Quote Originally Posted by TonyOW31 View Post
    remuneration?

    Are they paying in bovine?


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    Ox
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    Quote Originally Posted by Ox View Post
    Are they paying in bovine?


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    More likely in moly dee. Or a Kudus smothered in moly dee maybe. hrmm

    On another note I can definitely see a market adjustment, its inevitable I personally think the more stimulus/bailout/what ever they do is only making it more volatile and a much bigger problem its over inflated, it has lost it's true value in my opinion . They need to let shit default, and have the chips fall where they may. All those people who bought houses and had loans with the banks that failed in the states should have been able to keep their houses, no bail out no BS no other banks getting involved the banks got greedy and they should have lost. Seems simple to me, you have a loan with a bank the bank tanks and the loan with it. House should be your's by default.

    But that was all the scam, credit default swaps, insurance on derivatives blah blah blah. After that fiasco people decided to get into tangible commodities I believe, now this is where the problems start with what we are seeing here. That is why gold is at an astronomical fuckin price its absurd. I think the wave is going to ride a little longer and it will crest but it will be a tsunami, and we are probably going to end up with 1 world currency in the after math because we are all going to get screwed together.
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    Quote Originally Posted by Ox View Post
    Are they paying in bovine?


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    Ox
    Maybe I'm a bit slow, but I fail to see the link?

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    Quote Originally Posted by FishTaco View Post
    ... tsunami, and we are probably going to end up with 1 world currency in the after ...
    More likely we'll have as many currencies as traders, 'cause truth be told, that's what we've had all along.

    Debt: The first five thousand years - Long Views


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    jdj
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    I don't doubt that things are going to get worse, HOWEVER...SOMEONE, is ALWAYS screaming that the end is near! Different reasons, but it never stops. Hard to take the sky is falling all the time.

    All the talk on the news of market insecurity and the like is NOT helping anything!
    I heard that Goldman Sachs told the press that things didn't look too good! GEE WHIZZ! I guess they WANT the stock market to go down the toilet! GUYS! (GS) STFU!!!!!!

    Jeff
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    BadBeta is offline Stainless
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    Quote Originally Posted by devsterd1 View Post
    Randy Wray from the link:

    "Yes, commodity bubbles happen, but eventually reality sets in and brings the price back down to reality. You don’t get 3, 4, and 5 standard deviation events. A four standard deviation price rise falls outside 99.994% of all outcomes—one in 100,000 years; a five standard deviation price rise is about one in 2 million years. That pretty much covers the time since our ancestors beat things with big sticks.
    That just sounds like statistical hogwash. There has been commodity trading on a worldwide scale for 150-300 years, and modern trading with realtime worldwide updates just the last 15-20 years. What base does that give to say anything about how prices form, develop and what is normal and not normal deviations on a scale of 100000 years, not to mention 2 million years? It is like predicting the weather for the next 10 years based on just last week. (And regardless, looking back to see the future is always a tough one).

    It also seems to me there is a major inconsistency in the article:

    "The weapon of choice is the futures contracts—essentially you buy commodities for future delivery (a couple of months from now)."

    Then he presents the claimed problem:

    "Real world suppliers feel the imperative to slash prices to have some actual real world sales. They cannot forever live in never-never land with rising prices and collapsing sales".

    Which one is it? Do the future traders buy the commodities, or do they not? If they do then where is the problem with the collapsing sales? If they don't then where is the problem with future traders and raising prices?

    Personally I believe the article is wrong about commodities demand sinking, and about China wishing to slow down. (China might want to slow down it's growth rate, but it still wants growth as such). To me it makes sense that with hundreds of millions of new people joining the world middle classes, in China, India, Brazil and elsewhere, that demand for commodities go up. And with that some fluctuations in price as previous supplies aren't keeping up, and new supplies slowly and stepwise come online.

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    SND
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    The readjustment never happened yet.

    Don't expect much of a retirement.

    I recently found it quite interesting that US companies are taking out life insurances on their employees, you're worth more to them dead than alive. Now imagine how many of those schemes are boosting the market values and "profits", by not creating anything material.



    Then think that RIM (blackberry) is going down because they only made what a 700million quarter in profit after selling how many millions of those phones? but its "less than expected" apple gained market shares, so the sky is falling and they want heads to roll.

    The only sad part is that all those of us without a cent invested in that scheme, get screwed the same as everyone else everytime we buy something,food, etc, or our interest rates go up.

    Everybody wants growth, gotta have growth, can't have negative growth(wtf eh?) we don't even have plain sustainability and the essentials for the population we have now. Double profits by cutting half the work force is considered growth. That's pretty effed up.
    Last edited by SND; 09-23-2011 at 03:18 PM.
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    ColoradoBoy is offline Stainless
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    Commodities have a price floor below which production
    ceases and price begins to climb again.

    Decline bad for producers or commodity investors but
    lower prices good for everyone else. Interesting to see
    if expected commodity decline resuts in lower prices for
    goods or if profit taking in the middle keeps price stable
    for finished goods.

    By example, oil products seem to have a price point of
    their own regardless of raw material price usually
    explained by smoke & mirrors.

    Otherwise, just another month at the Wall St. casino
    with a struggling world economy nobody seems able
    to cure.
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    Quote Originally Posted by TonyOW31 View Post
    Maybe I'm a bit slow, but I fail to see the link?

    It may take a bit to digest or cuddle that thought.



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    Think Snow Eh!
    Ox

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