Off to Bloomberg TV
I will be out of pocket for awhile this morning, as I am off to Bloomberg for a quick tv hit at 9:40.
Meanwhile, have a look at these charts, via today's NYT:
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Can the Federal Reserve cause commodity inflation?
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Source:
Commodities: Latest Boom, Plentiful Risk
DIANA B. HENRIQUES
NYT, March 20, 2008
http://www.nytimes.com/2008/03/20/business/20commodity.html
Thursday, March 20, 2008 | 09:00 AM | Permalink
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Comments
Do you still like Newmont here?
Posted by: Vermont Trader | Mar 20, 2008 9:04:01 AM
Two Things:
1. Average 401k investor doesn't trade contracts and most sub $100,000 accounts don't have access to, nor choose commodities as a main part of their retirement. Money magazine, et. all, still never heard of gold or FX as an asset class.
2. With the well known increase in the gap between rich and poor, just the rich, well advised clients, have already jumped into commodities. Just like the Odd Lot theory, I don't think the numbers above represent the bearish sign of everybody being bullish.
Just as the bulls haven't yet capitulated in stocks, the commodities run hasn't yet seen the average joe's money. Thus, me thinks yesterday is just a correction. Inflation and global demand are still the Bulls horns in commodities.
Posted by: tbapple | Mar 20, 2008 9:22:10 AM
Avg investors are a very small part of the market, since they do not use leverage. Buying comodities has been like shooting fish in a barrel for leveraged he3dge funds (with a few notable exceptions involving nat gas).
Posted by: larster | Mar 20, 2008 9:27:54 AM
Quote from NYT story used as reference
"Regulators and exchange officials take comfort from the rising commodity prices, which reduce the risk that lenders will grow nervous about their collateral and withhold new credit. Despite a broad commodities sell-off yesterday, a Commodity Research Bureau index remains almost 40 percent higher than a year earlier."
This is exactly the same thing that happened with housing and is a classic sign of bubble formation throughout history. Investors and creditors depend on rising prices in order to avoid a cascade effect of losses. (See housing / lending crisis for more information.)
Shit, these people are dumb.
Posted by: cinefoz | Mar 20, 2008 9:31:41 AM
The ongoing leverage unwind will hit commodities as hard as everything else. Prime broker desks pulling back, and MF Global came out yesterday and raised margin on stocks from 25% to 90%, giving clients until this morning to stump up cash or get stopped out. I'm sure that sort of behaviour will continue elsewhere. The fish in the barrel may start shooting back...
Posted by: traderboy | Mar 20, 2008 9:35:07 AM
Aren't we in a classic inflation in these markets: too much money chasing too few goods? We have capital "searching" for the next big opportunity, and finding that opportunity always results in price bubbles. Now we have leveraged hedge funds buying leveraged futures in volume not imagined even three years ago. Any of us who have been in the futures markets know how fast a margin call can occur. However in these hedge fund cases the margin call is doubled (one for the hedge fund and another for the futures AND, as we have seen, many more margin calls on a seemingly unending chain of other leveraged positions). What is your feeling here? More regulation? The imposition of rigid position limits? A demand for total transparency of all positions held with a device that demands extra margin for risks that seem far to speculative? Face it, we are paying far too much for gasoline with a speculator "premium" built into the retail price. Same can now be said for farm products. It is my opinion that we are subsidizing speculation, aren't we?
Posted by: Howard Veit | Mar 20, 2008 9:36:31 AM
Let's see now. The Fed is stoking the flames of inflation like it's 1974 and they need to diminish inflation expectations. Go to the exchanges and ask them to raise margin requirements to spook a few of the heggies.
Some commodities decline by 15-20%. You now land on a Carrier. Mission acomplished!
We are living in the theatre of the absurd. Let the Thugees into the treasury and pretend to worry about deflation?
Clueless imbeciles.
Posted by: Ross | Mar 20, 2008 9:41:47 AM
Deflation is what happens when credit/debt is vaporized/retired faster than it can be originated. With a slowing global economy, who exactly needs all these commodities?
Cash will be king.
Posted by: SPECTRE of Deflation | Mar 20, 2008 9:43:04 AM
Ross, pretty much a shoot the messenger strategy.
Posted by: Stuart | Mar 20, 2008 9:46:28 AM
Should any commodity based hedge fund be on Amaranth watch?
BTW, I like the higher margin requirements mentioned above. I hope it becomes commonplace with respect to commodity contracts. If so, I bet we might even see commodity price declines severe enough so that they reflect the value of the actual commodity.
Technically speaking, it is usually a change in credit terms or credit availability that pops bubbles. The pop occurs when speculation is so frenzied that continually rising prices are a requirement. 'Unfavorable' credit causes the cascade to begin. Oil at $75? $60?
Posted by: cinefoz | Mar 20, 2008 9:57:53 AM
Enjoyed your interview.. Agree with your call on dipping a toe into money center banks and have been doing so myself over last 4 days. Covered my materials and energy shorts this morning so my portfolio has a high cash component as well. Still long the odd consumer name and several big name financials
Posted by: Vermont Trader | Mar 20, 2008 9:57:59 AM
Will cash be king even if the dollar looks like the old italian lira?
Posted by: freejack | Mar 20, 2008 9:59:02 AM
DOT.COM bubble ===> HOUSING bubble ===> CREDIT bubble ===> COMMODITY bubble ===> ?????
Posted by: cliffynator | Mar 20, 2008 10:01:45 AM
Stuart,
Thanks. You summed it up in one sentence. Shoot the messenger. I love it!
Posted by: Ross | Mar 20, 2008 10:03:12 AM
freejack, the dollar is doing a moonshot this morning while the commodity market is now taking it in the shorts. I expect it to continue, but by all means disregard my thoughts. I will hold all the FRNs I can get my hands on.
Posted by: SPECTRE of Deflation | Mar 20, 2008 10:06:19 AM
Ross, it would of been nice if they had raised margin requirements on homeowners too. They let the bubble build in housing which led to higher commodity prices because of the asset inflation. Now the bubble has burst in housing, and the demand we formally had in all things commodity is also now deflating. It's always the credit markets that start the trouble after they have overleveraged on everything.
Posted by: SPECTRE of Deflation | Mar 20, 2008 10:16:09 AM
What do you think about stock analysts altering price targets for specific stocks, pre-market on expiration day?
Posted by: mhm | Mar 20, 2008 10:17:21 AM
Federal Reserve is trying to do the best they can, only time will tell. I have been overly harsh on Ben Bernanke and his fellow Fed policymakers, I hope them luck and that all turns out well.
“Rude am I in my speech,
And little blessed with the soft phrase of peace.”
William Shakespeare
Posted by: D | Mar 20, 2008 10:21:07 AM
CREDIT bubble ===> COMMODITY bubble ===> ?????
GREEN TECH?
"the dollar is doing a moonshot this morning"
Thats nice. Lets talk again in a few weeks.
Posted by: freejack | Mar 20, 2008 10:21:25 AM
Long term trends are still up but, like everything else just now, the extreme volatility is encouraging pullbacks of cash and risk exposure. Stocks, carry trades, commodities are all opening eyes to crowded trades that need reassessment.
Posted by: cathompson | Mar 20, 2008 10:22:34 AM
Operation twist and squeeze.
Seen it before. Dollar intervention, increased margin requirements, massive liquidity injections. Voila! Normality.
Question. The Fed has the ability to raise margin requirements for stock purchases. It has been at 50% for eons. If you truely wanted to stop market bubbles, why didn't they raise them to 90% in say 1999?
Stock jockies run the Fed. This central bank will fail in my lifetime and I only got about 15 years left.
Posted by: Ross | Mar 20, 2008 10:26:38 AM
freejack, you got it bro. Let's see who's right in a slowing global economy.
Posted by: SPECTRE of Deflation | Mar 20, 2008 10:26:43 AM
Symbol
$IRX
52 Wk High 49.35
52 Wk Low 2.00
Last 2.00
How normal is that?????
Posted by: MarkTX | Mar 20, 2008 10:54:41 AM
You are great but you talk about all your appearances too much. Readers of this blog are already have your attention, so why bother?
Posted by: Wood | Mar 20, 2008 11:13:13 AM
Massive dollar contraction going on right before your eyes. Oil below $70 by 9/30.
Posted by: DoctorOfLove | Mar 20, 2008 11:22:57 AM
Ya Barry,
I am not getting my monthly subcribtion fee out of you this month. Come up with some better stuff. :)
Posted by: B.B. | Mar 20, 2008 11:39:20 AM
This is exactly the same thing that happened with housing and is a classic sign of bubble formation throughout history. Investors and creditors depend on rising prices in order to avoid a cascade effect of losses. (See housing / lending crisis for more information.)
Shit, these people are dumb.
Posted by: cinefoz | Mar 20, 2008 9:31:41 AM
There are commodities (tulip bulbs), and then there are commodities (wheat, or any other unprocessed foodstuff). In hard times, the difference becomes more apparent.
Check the history of the fall of Constantinople. The hot commodity was food of any kind. You could not buy a crust of bread for a chest of jewels. People ate their jewels (most that did this met a nasty end when the Ottomans figured out where the booty was stashed).
Could go on, but I have a meeting.
Point is: how essential is the commodity?
Posted by: Marcus Aurelius | Mar 20, 2008 11:44:24 AM
DoctorOfLove,
Consider this chart of zero maturity money. Maybe you've been looking at it upside down?
The last time this spiked, we saw the funds flow to housing and stocks. It remains to be seen where it flows this time around.
Posted by: Estragon | Mar 20, 2008 11:46:57 AM
Estragon-
Most if not all "professionals" in the real estate biz are praying that it's directed at housing as that has been there line for the last two months as to what they plan to do to sell homes.
That they continue to cling to hold and hope rather than any suggestions or ACTUAL WORK to facilitate any of that happening tells me all I need to know about the coming "recovery"....they (mostly all) all think it will be like pixie dust and fairies...just like our (what;s left of them) indexes.
Ciao
MS
Posted by: michael schumacher | Mar 20, 2008 12:13:01 PM
Seems to me that the Bulls are a little over zealous in wanting to declare this the bottom - Philly Fed -.03. Not exactly steller.
Posted by: JustinTheSkeptic | Mar 20, 2008 12:43:02 PM
Strange perspective: In a weird way this ridiculous bubble in commodities bodes well for the future, since at these prices, the supply of many commodities will skyrocket, while demamd is slowing due to the high prices and slowing economy. When this reality sets in, we will be rewarded with cheap commodities for a long while.
Posted by: Bucket | Mar 20, 2008 1:05:25 PM
Bove had a private meeting with government to pump-up the financail sector, in fact the whole CNBC crew, and all the gurus they bring on there program are all government sponsered pumpers!!!
Posted by: JustinTheSkeptic | Mar 20, 2008 1:15:30 PM
you cannot stage things any better than what has been happening the last couple of months.
Posted by: JustinTheSkeptic | Mar 20, 2008 1:17:36 PM
the reason I say this is that we haven't even come close to historical numbers and everyone is so sure the bottom has been reached. Yet, everyone knows that we are swimming in uncharted waters. My take is that things are extremely bad. The best that the people in office and places of power financial or otherwise can do is punt and keep on punting
Posted by: JustinTheSkeptic | Mar 20, 2008 1:21:37 PM
justin-
The markets reaction to today's news:
"we don't suck as bad as we thought we did yesterday"
and OT someone please shoot SBUX......I am staggered at the amount of money that gets tossed at it to keep it above 17.......that will end it tears.
Ciao
MS
Posted by: michael schumacher | Mar 20, 2008 1:32:19 PM
No doubt we end at High Of the Day on all indexes regardless of OP EX (OR NEWS).
That 1:00 program is kicked in.....
HOD As I speak
now is it a 300 or 400 point day?????
Posted by: MarkTX | Mar 20, 2008 2:38:37 PM
Gold and Oil are now the current bubble BUST!
Posted by: kip goldman | Mar 21, 2008 2:16:41 AM
Gold and Oil are now the current bubble BUST!
Posted by: kip goldman | Mar 21, 2008 2:17:33 AM
