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FYI: The law of supply and demand has been a cruel force for the companies that dig up and sell the raw materials that build modern society—copper, iron ore, aluminum and others—and for investors in those commodities. The fundamental imbalance between huge new supplies and waning demand is unlikely to change soon. Regards, Ted http://graphics.wsj.com/commodities-super-slump/
The Chinese carry trade has been obscuring the real demand for years. A Bloomberg article from a few months ago. Estimates are that 70% of the demand in 2013/2014 was fake.
If that's true then there's some mining companies who, having financed major production expansions to meet the Chinese market, might be in real trouble.
@mozart325 thanks for that article link. Not at all surprising.
It is my hypothesis expressed before in this forum that a similar thing happened with oil as well creating artificial demand for oil that took it to above $100. The "Western traders" have not been identified here but are likely the same commodities trading desks involved.
This was the beginning of the end of the commodities trading desks at the banks as CFTC went from slapping wrists as in the above article for what should be criminal activities to full spotlight on these banks after the 2008 meltdown and better regulations on their entire activities. All the banks including MS started getting rid of their commodities trading soon after and now we have a glut of oil and commodities. People think it is because of a slowing economy in China and collapse the markets and the analysts at the same banks encourage this view.
Is there any wonder that people distrust these entities or the wealth created out of such entities? This is not the good side of capitalism.
Yes, and if you recall they deliberately made it very difficult to deliver those commodities in a timely manner to the manufacturing entities that needed the stuff. Artificial bottlenecks to drive up the price.
To be able to buy things like gas, food, coffee, beer, lumber, cement for historically low prices is a wonderful thing. I hope the commodities down cycle continues.
Who would wish for inflation? Went through that in the 70s and 80s. Agriculture is a commodity few of us can live without. There were full-time employees in grocery stores whose job consisted of little more than marking things up every day. No computers or scanners back than - so individual items (i.e.: a jar of pickles or bottle of ketchup) actually bore a price. Imagine the work involved in constantly remarking items on the shelves to reflect the new higher price. Nothing stayed the same price longer than a week or two.
Was really awful. So bad President Nixon froze (virtually all) prices and wages through executive action in the early 70s. Of course it didn't help because when the freeze came off several months later prices rapidly adjusted upward. So be thankful for the current downward trend in commodity prices.
@ hank Was really awful. So bad President Nixon froze (virtually all) prices and wages through executive action in the early 70s & there I was , trying to make a living with wife & child , while stationed in Germany !! Derf
Some inflationary is necessary for growth. What keeps the Fed awake at night these days is deflation more than any inflation.
We have moved away from a wage based wealth creation for the middle class to an asset (paper) value inflation based wealth creation. In the 70s and 80s, when companies did well, they gave good raises which increased wage pressures on inflation and subsequent price inflation which spiraled upwards as companies felt pressured to raise wages to beat inflation.
Wealth by asset inflation is not counted in published inflation numbers. So there is no upward pressure on wages AND no consequent downward pressure on prices. This is great for corporate margins as commodities go lower but prices do not (except for volatile oil prices) which increases paper value of equity assets which makes people feel wealthy and keeps them spending even without wage growth. No fear of triggering inflation as calculated and there is a spiral upwards in corporate profits and wealth. This is what kept the bull market going for the last 5 years and the housing asset inflation kept it going for the years before 2008 meltdown.
In other words, there are better chances of me becoming a billionaire with asset inflation than getting back to the high inflation days of the 70s.
The down side is that the asset wealth is somewhat illusory and subject to market manipulations and sentiments. Unlike wage based wealth, this wealth can be created and destroyed in a very short time and in great quantities so the boom and bust cycles typically result in a huge transfer of wealth from the stupid to the smart who realize this game and exploit it. The rest go along for the ride.
Comments
http://www.bloomberg.com/professional/blog/unwinding-of-carry-trade-may-unmask-chinas-true-metal-demand/
It is my hypothesis expressed before in this forum that a similar thing happened with oil as well creating artificial demand for oil that took it to above $100. The "Western traders" have not been identified here but are likely the same commodities trading desks involved.
As to what was happening in oil
http://www.mcclatchydc.com/news/nation-world/national/economy/article24581260.html
This was the beginning of the end of the commodities trading desks at the banks as CFTC went from slapping wrists as in the above article for what should be criminal activities to full spotlight on these banks after the 2008 meltdown and better regulations on their entire activities. All the banks including MS started getting rid of their commodities trading soon after and now we have a glut of oil and commodities. People think it is because of a slowing economy in China and collapse the markets and the analysts at the same banks encourage this view.
Is there any wonder that people distrust these entities or the wealth created out of such entities? This is not the good side of capitalism.
http://www.nytimes.com/2013/07/23/business/inquiry-possible-into-storage-of-commodities-by-big-banks.html?_r=0
Who would wish for inflation? Went through that in the 70s and 80s. Agriculture is a commodity few of us can live without. There were full-time employees in grocery stores whose job consisted of little more than marking things up every day. No computers or scanners back than - so individual items (i.e.: a jar of pickles or bottle of ketchup) actually bore a price. Imagine the work involved in constantly remarking items on the shelves to reflect the new higher price. Nothing stayed the same price longer than a week or two.
Was really awful. So bad President Nixon froze (virtually all) prices and wages through executive action in the early 70s. Of course it didn't help because when the freeze came off several months later prices rapidly adjusted upward. So be thankful for the current downward trend in commodity prices.
Was really awful. So bad President Nixon froze (virtually all) prices and wages through executive action in the early 70s
& there I was , trying to make a living with wife & child , while stationed in Germany !!
Derf
You are right that lower commodities is stimulative except when they lead to a deflationary spiral.
http://www.investinganswers.com/financial-dictionary/economics/deflation-1160
Some inflationary is necessary for growth. What keeps the Fed awake at night these days is deflation more than any inflation.
We have moved away from a wage based wealth creation for the middle class to an asset (paper) value inflation based wealth creation. In the 70s and 80s, when companies did well, they gave good raises which increased wage pressures on inflation and subsequent price inflation which spiraled upwards as companies felt pressured to raise wages to beat inflation.
Wealth by asset inflation is not counted in published inflation numbers. So there is no upward pressure on wages AND no consequent downward pressure on prices. This is great for corporate margins as commodities go lower but prices do not (except for volatile oil prices) which increases paper value of equity assets which makes people feel wealthy and keeps them spending even without wage growth. No fear of triggering inflation as calculated and there is a spiral upwards in corporate profits and wealth. This is what kept the bull market going for the last 5 years and the housing asset inflation kept it going for the years before 2008 meltdown.
In other words, there are better chances of me becoming a billionaire with asset inflation than getting back to the high inflation days of the 70s.
The down side is that the asset wealth is somewhat illusory and subject to market manipulations and sentiments. Unlike wage based wealth, this wealth can be created and destroyed in a very short time and in great quantities so the boom and bust cycles typically result in a huge transfer of wealth from the stupid to the smart who realize this game and exploit it. The rest go along for the ride.