Commodities

     

 

 

A Fake Economy

AIKEN, South Carolina – Aiken is battened down. The wind is blowing hard… dark clouds race across the sky… trash bags tumble down the main street. “This is tornado weather,” said a local resident. “You better be ready to run.”

 

concept of rich and poorFrom poor to rich and back? Read on …

Photo credit: Enrique Ramos Lopez

 

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Money Printing and Price Inflation

Ten years back when the central banks around the western world—as elsewhere—were printing money with abandon, it was claimed by rational observers that this would lead to hyper-inflation. It was claimed that the best the central banks could do was to control short-term interest rates, surreptitiously expropriating the wealth of citizens.

Eventually the market had to find out, directly or indirectly, what was happening — as newly printed currency played havoc in the market — and prices in nominal terms would rise. Long-term yields on sovereign bonds were expected to sky-rocket, to account for increasing inflation.

 

800px-Salon_de_Madame_GeoffrinThe Age of Reason: Salon de Madame Goeffrin, a painting by Anicet Charles Gabriel Lemonnier, showing distinguished French thinkers of the Enlightenment gathered in one room.

 

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Why Should a Decline in Oil Prices be Bad?

The dramatic fall in the global price of oil is being cited by the financial press, government officials, and academia as the catalyst for the recent abysmal U.S. economic data which shows that the economy is, in all likelihood, sliding into a recession or worse.

 

Oil_cartoon_12.09.2014_largeOil prices in dire straits…

 

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Nobody Knows Anything

PARIS – What do we know now? We consult the gods… and the dead. On Tuesday, the Dow eked out a 52-point gain, to the relief of investors [ed. note: that was wiped out and then some on Wednesday].

But crude oil continued its historic slide. As of yesterday’s close, a barrel of U.S. crude oil changed hands for just over $31 a barrel. That is a 71% drop from the $107 price tag at the peak of the oil market about 18 months ago.

 

oil_storage_tanksCrude oil storage tanks… bursting at the seams.

Photo via proteuspetroleum.com

 

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Have all the “Supercycle” Gains been Wiped Out?

We have frequently come across articles lately that are purporting to show that commodity prices have in the meantime declined below the lows that obtained at the start of the last bull market. Yesterday Zerohedge e.g. posted a chart from Sean Corrigan’s True Sinews Report, which depicts the GSCI Excess Return Index. The following remark accompanied the chart:

 

“Returns from being long the commodity super-cycle have evaporated in the last 18 months – to 42 year lows.”

 

So are commodities as a group really at 42 year lows? Here is a little test: can you name even a single listed commodity that currently trades at a lower price than at any time since January 1974?

 

commgreschImage credit: Ian Berry / CNN

 

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Lower Oil Prices

To the dismay of U.S. shale producers, oil prices continue their long slow slide into the abyss.  Perhaps the current price of $35 per barrel – an 11 year low – is the final destination.  More than likely, however, it’s a brief reprieve before the next descent.

 

excess natural gas burns southeast of BaghdadPhoto credit: Mohammed Ameen / Reuters

 

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Manufacturing Weakness

In light of an unbroken string of atrocious manufacturing survey data, we have decided to update a few of the charts we use to assess the economy. For a discussion of the details of the most recent manufacturing surveys see Mish (Empire State and Philadelphia) and Zerohedge (Empire State and Philadelphia). We would note to these data that the strong decline in new orders is especially noteworthy.

 

abgrund100~_pd-1440399414404_v-z-a-par-a-lPhoto credit: ard.de

 

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Revisiting Crude Oil

Beginning in late August we have frequently discussed the possibility that a significant low in crude oil prices could be imminent in spite of the “obvious” lousy fundamentals. As blind luck would have it, the first of these articles (entitled Is Crude Oil Close to a Low?”) was posted exactly one trading day before the low to date was actually put in. Well, you know what they say about blind chickens :).

 

oil-glut-_freshideaImage credit: freshidea – Fotolia

 

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Do Low Interest Rates Help the Economy?

Larry Parks has recently interviewed our frequent contributor Keith Weiner, the CEO of Monetary Metals and president of the US Gold Standard Institute in Phoenix, AZ. A video of the interview can be seen below.

 

Topics covered include:

 

• What isn’t the problem with the Fed and the dollar?
• Forget about the spin, what is the real purpose of the Fed?
• What does it do to labor?
• What does it do to capital?
• Effect of falling interest rates
• What does it do to the culture?
• Can’t the Fed just raise rates?
• Is there hyperinflation occurring right now, unnoticed?
• Is ZIRP helpful or detrimental for ordinary working people.
• What is the remedy for fixing our monetary system?
• What is the problem with debt never being extinguished?
• How does fiat money play out in the end?
• Explain about the marginal utility/productivity of debt in lay terms

 

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Why Technical Developments Shouldn’t be Ignored

This is a little addendum to our recent comments on the crude oil market (which you can see here, here and here, in chronological order). Apparently Goldman Sachs just published a research report calling for $20 oil – which strikes us as a bookend to their infamous $200 call in 2008, which preceded the ultimate peak at $149 by just one or two weeks if memory serves (readers may remember this call by GS – it did get a lot of press at the time).

 

13328798Photo credit: fmh

 

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An Industry in Severe Trouble

We always keep a close eye on industries that are in trouble (as our countless articles on the gold industry probably demonstrate), because this is where bargains usually emerge. We have a simple rule of thumb: Investment success depends primarily on one thing, namely how cheaply one buys.

Show us a stock market with a single digit P/E ratio (like the Russian or Greek markets these days) and we will begin to look at it as a potential opportunity. We don’t care much for tech stocks with triple digit P/Es, even though we may acknowledge their worth as successful companies and even use their products.

 

Coal-_-fire_2404398aPhoto via telegraph.co.uk

 

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Sometimes Things Work as They “Should”

Hopefully readers were able to take advantage from what turned out to be two extremely well-timed recent posts on the upside potential for crude oil (admittedly the timing was just a case of luck). We recommend checking them out again if you missed them, as they are laying out the “very lonely” bullish case in detail (see: “Is Crude Oil Close to a Low?”, and “More on Crude Oil and Industrial Commodities”).

 

17832412-v2_xlarge

 

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