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09-22-2011, 01:31 PM #1
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."
I'd really like to hear from the European, Australian and Asian members...... and the locals of course.
09-22-2011, 01:43 PM #2
Priced in Labor, or priced in Credit?
rkucbel1 liked this post
09-22-2011, 01:57 PM #3
Interesting reading - thanks for the links.
09-22-2011, 01:58 PM #4
09-22-2011, 01:59 PM #5
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.
09-22-2011, 02:07 PM #6
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09-22-2011, 02:29 PM #7
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.
09-22-2011, 02:35 PM #8
09-22-2011, 08:46 PM #9
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.
devsterd1 liked this post
09-22-2011, 09:48 PM #10
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?
Laurentian liked this post
09-22-2011, 10:26 PM #11
09-22-2011, 10:48 PM #12
FranH liked this post
09-22-2011, 10:57 PM #13
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.
09-23-2011, 02:23 AM #14
09-23-2011, 03:30 AM #15
09-23-2011, 04:04 AM #16
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!!!!!!
09-23-2011, 07:40 AM #17
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.
09-23-2011, 08:03 AM #18
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 04:18 PM.
09-23-2011, 09:01 AM #19
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
jdj liked this post
09-23-2011, 09:43 AM #20