Commodity Prices Are Falling Sharply
Unusual Market Action
By blackhedd Posted in Bond market | commodity prices | Economy | inflation | Stock Market — Comments (29) / Email this page » / Leave a comment »
Remember a few days ago, I suggested here and here that: A) commodity prices worldwide are in a bubble; B) bubbles always burst; and C) when this one does it’ll be bad news because so many global investors have piled on?
As I write at about 1:45pm EDT, every major commodity that is traded on world markets is down sharply. It’s been a long time since I’ve seen anything like this.
Keep reading...
Coal prices were the canary in the mine (if you’ll pardon the expression). Coal is used to manufacture steel, and steel manufacturers finally starting balking at higher coal prices, because they knew their customers (automakers, consumer-durables makers, and construction companies) wouldn’t be able to pass the cost increases along.
So last week, the price of coal collapsed, taking the stock prices of many coal-producing companies with it.
This morning, two things happened: coal prices did not rebound from the sharp selloff and have fallen another three percent or so today. And the perception has started to take hold that a stronger dollar is in the future.
At this moment, almost every commodity is down one percent or more. Crude oil is down nearly 3%. Wheat and soybeans are down between 4% and 6%. Gold is down more than 8%.
And the US stock market has fallen sharply after starting the day in positive territory. Treasury bonds are sharply higher.
Update: 2pm EDT. I should also note that concerns about capital inadequacy at Fannie Mae and Freddie Mac have both stocks down more than 20%, which is scary. That was probably the trigger for the stock-market decline. As I've said to several people privately in recent days, the equity-capital of the US financial industry as a whole may actually be far lower than it looks. There's a possibility that it's near zero.
Batten down the hatches. We’re in for a wild ride.
-Francis Cianfrocca
The Credit Crisis and the Economic Outlook — Comments (19) »
Commodity Prices Are Falling Sharply 29 Comments (0 topical, 29 editorial, 0 hidden) Post a comment »
there is usually some linkage. Gold and Oil usually go up together. Agricultural commodities can be adversely effected by high oil. Or they might move together.
The dollar is not effected by commodities but the other way around, a weak dollar drives prices up.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
I just dashed this off because the coal-price thing last week had everyone spooked, and then I noticed the whole commodity board was wall-to-wall red ink.
We're going to come under tremendous pressure to support the value of the dollar, not least because a weak dollar is part of a complicated dynamic that ends up creating inflation and economic weakness elsewhere in the world.
What would you think if you were the newly-elected President next year (whoever it is), and your new Treasury Secretary walked in and said that our economic weakness was causing a significant risk of social chaos in China? And he was followed by your new Secretary of State, bringing a war warning from East Asia?
How do we make the dollar stronger? Much higher short-term interest rates. Oh wait, isn't that going to cause a much higher mortgage-foreclosure rate, cut the stock market in half, create a wicked recession, and possibly wipe out a huge number of jobs?
Yep. Sorry about that.
would be sufficient to prop up the dollar. The problem is as much psychological as anything else. Markets want to know if Bernanke has the cojones to raise them at all, even if it is a token move.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
that he might be doing this come the fall.
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4.62, 0.51
A commodity contract is like a bet against what the price of that commodity will be on a certain date. Let's say you are a wheat farmer, which is traded by the bushel (I think), and you sell it at $2.50/bushel for a November delivery. you are securing a price for your wheat so that if come November, wheat is $2.00/bushel, you made an extra 50 cents per bushel than you would have if you didn't have the contract. On the other hand, if wheat is $3.00/bushel in November, then you made 50 cents per bushel less then if you didn't have the contract.
In other words, commodities trading is a way of hedging bets against a future price decrease/increase.
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4.62, 0.51
and yet, some states outlaw blackjack..
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Dependence is Slavery.
Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85
if you are a farmer and afraid that a drop in wheat prices will wipe you out you can sell at current prices for future delivery.
You miss out on a big profit if prices rise, but you don't lose your ass if prices drop.
Or you could be a smart utility company who buys coal at current prices so that the higher prices at delivery date do not cause you to have to charge more to your customers.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
Oh, I don't have a problem with a business rate-locking if both parties agree to it.
Southwest airlines is the only big airlines to operate in the black because of rate-locking on fuel.
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Dependence is Slavery.
Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85
If you're a farmer, forward-selling your harvest gives you a chance to avoid the potential for market prices to move against you during the summer months and wipe you out after all the work you did.
Sure, if you don't hedge you'll make out in some years when prices rise. But you don't get paid to take market risk, you get paid to grow food. The futures markets give you a way of selling your market risk to someone who is happy to take it. (That someone, by the way, is called a speculator.)
By the way, two dollars fifty for a bushel of wheat (60 pounds) is a distant memory. :-) If I recall correctly, the basic unit in which wheat is trading is 5000 bushels, but I could be wrong. Crude oil trades in New York in units of 1000 barrels.
To LanceKeats: your remark about blackjack is somewhat apropos. Since about 1970, we've had futures markets in financial products like stock-price indexes. For over a century, it was believed that trading futures on things that couldn't be physically delivered was indeed against the laws prohibiting gambling. It took a creative interpretation from the SEC to establish otherwise.
15% lower prices by years end. That is not from their high point but from march when I made the prediction. It could be much lower.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
___________________________
The eXfuze Storm is Coming!
Chase The Storm!
JL Mealer.
Check out McCain's 3R Economic Plan from the private sector:
www.betterconstructed.com/mccain.htm
THIS IS OUR TRUMP CARD!
JOHN McCAIN’S 3R ECONOMIC PLAN 2008
Abbreviated version
Republican Candidate John McCain with a progressive outlook, comes through for America with his 3R economic plan.
NUTS AND BOLTS of the plan are simple.
RETHINK REFORM REINVENT
As Americans we must Rethink our role as the new leader of industrial nations while we Reform our mindset of what best benefits not only the US Economy but the world economy. We must always keep in mind that a stronger America is a Stronger World and we MUST always make it first and foremost to own a stake in what matter most.
Americans must Reinvent our national approach to regain our strength as the global leader in this new McCain 3R Phase of USA manufacturing.
Our goals should no longer be steeped in the pure greed of strict capitalism but rather in a progressive entrepreneurship system where smaller companies are formed by private individuals and private sector groups of goal oriented teammates.
Speculators and accredited private investors will pick and choose these businesses, which may also be grouped in investment packages such as with current commodity and futures trading. The laws to do this exist and people are waiting for the next best investment.
Investing in the American workforce has always been in high demand until the greedy AFL CIO took control of the working class and chased away or ruined the corporations!
The growth will be phenomenal as a Corporation or LLC opened for business may fail on occasion, but with proper training and support from the 3R Schools, a simple manufacturing business may be purchased or simply revamped for a new opportunity in the US Commodity Market as well as with the manufacturing arena.
The highly profitable products to be manufactured are a concern for a huge Corporation looking at only the bottom dollar, but smaller LLC and Corporations in the manufacturing world are often better run with limited production items sold at reasonable prices. Profits are made not only from the USA made wholesale goods, but the massive USA based jobs provided along with the stocks and commodities in the market.
The move from fossil fuels to affordable energy can only be done in one of two ways:
1. Halt all projects paid for with taxes at the pump and other fuel taxes, OR,
2. John McCain’s Economic Plan involving the 3R’s, Rethink, Reform, Reinvent.
McCain’s 3R is technical, closely monitored, rapid and hands on training course from professionals to create new professionals. Thousands of currently-job-displaced “once leaders in the manufacturing arena” will be paid to train and instruct in the 3R plan.
These new leaders will step up to help create a whole new style of prosperous America. A massive restructuring that will provide thousands of new American manufacturing companies and create millions of new jobs for infrastructure alone.
Americans are going back to school where they are paid to reinvent their skills and learn new skills to design and lead their personal LLC, Corporation or joint venture company.
That’s easy enough to comprehend and just as easy to implement.
The 3R plan is designed as a six-month rapid advancement system.
Graduates may return for additional skill enhancements from time to time, or step up after new advanced training in executive management.
New jobs are the mainstay for creating a new guard for Social Security.
Initial estimates of 1 in 5 students will begin his or her own company and drive even more Americans into a viable lifestyle with real jobs, real benefits and a retirement to look forward to. By making these opportunities available without the crippling AFL CIO interference and their mob like influence, America will explode into the world market.
All of this governed under strict employee benefits as provided by state and federal standards and improved upon by each mfg operation to provide security and safety for these new 3R American workers.
This 3R plan may be accomplished without costing taxpayers (or the government) additional funds. America has the means to follow through with John McCain’s 3R plan, ready and in place across the USA. The buildings we need for our initial 3R schooling and MFG arenas sit vacant or abandoned.
By assuming leases on abandoned stores and factories across America with 3R schools and mini-manufacturing training centers, we may allow building owners to write-off their donations and reduced leases in taxes over a few years, and even more if they donate the space.
USA made tools, power equipment, bicycles, computers, TV’s, radios, furniture, building material, clothing, automotive products… the list is endless, will become the pride of American workers once again.
These ideas are great in themselves, but an entirely new stream of jobs to supply support for these manufacturing companies and their hundreds of thousands of new employees will be created and expanded. Business and infrastructure from shopping malls to homes, new roads to restaurants, grocery stores to government outlets and so much more…
McCain’s Straight Talk and decisive nature embodies a Progressive Theodore Roosevelt more than any US presidential candidate in history since the original Rough Rider blazed the greatest era of growth in America.
The 3R plan just makes sense.
THIS DRAFT COURTESY OF:
John Lewis Mealer
founding president Mealer Companies
www.betterconstructed.com (original promotional site)
This is now the second place where you've posted this same post.
In fact, every post of yours seems to be about this same thing, since you've registered 2 days ago.
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Dependence is Slavery.
Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85
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4.62, 0.51
Or someone hoping for free press.
----------------------
Dependence is Slavery.
Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85
You'll note the repetitive usage of "rethink," "reinvent," and "reform" with the occasional usage of the word "progressive." Under the original fascist-progressive model, the goals were clearly stated as "burn down the old stuff so we can build new and improved stuff," but this doesn't sell well with the American public who still have some vague notion that the French Revolutions invoking this sort of rhetoric tended to work out almost as badly for the common people as it did for Louis and Marie. So they've run the ideas through the Marketing Wizard Machine and come up with the verbiage noted above. The way they use the words, it means the same thing, but since in other contexts the words have more positive connotations, the people using them are more likely to avoid a seat full of rock salt in the butt when they use them.
After that you'll notice the rapid unconnected movement from one preposterous idea to the next without clear, logical transitions of any kind. Again this plays to the fascist mode of "don't just stand there, do SOMETHING!" and the implied actor is either the government, or the people acting as a single unit at the behest of the government.
Also, you'll note the length of the text. Right wing tracts tend to be compact and hard hitting. Left wing texts tend to be of the "mine book weighs more than yours" sort. I'll confess I only scanned his screed for the most part. I'm the sort who tries to put together the logic behind things even when it is really an anti-logic, and based on past experiences, at best a close reading will make my brain hurt, and there is the distinct possibility of actual brain damage if I start trying to work that out.
Please do not repeat the same text in comments again. If you wish to get exposure for a long piece, place it in a diary instead. But do not recommend your own diary, let others do so if they so choose.
Thank you and welcome to Redstate,
Mgmt.
They have 1 blog post, and it is this same comment that they've put into two other blogs.
In looking at all of their comments (3), 2 are the repost of the blog, the other is a statement about obama, then the same link provided as in the blog and his other two comments.
It appears that they first made it their diary and when they didn't get the publicity they wanted, they started posting it as a comment in other threads.
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Dependence is Slavery.
Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85
Just trying to do my part to help the group I have grown to appreciate.
----------------------
Dependence is Slavery.
Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85
If so, he lost me at "steeped in the greed of strict capitalism".
I for one think strict capitalism is exactly what the country needs. This 3R thing sounds more socialist than libertarian to me.
- left-wing, right-wing, in-tandem, shadowy conspiracy ring leader
to put anyone on the spot, but..
Back in the 1990's I purchased 500oz. of silver bars at about $5.00/oz.
At first the object was just for diversity. Then my plan was to keep 125oz. at $20/oz. to recoup my initial investment of $2500 and SELL to invest elsewhere.
With the housing nonsense, the weak dollar, and oil prices, I figured $20/oz silver was going to be easy.
So my question is, as of today 7/7/08 NY SPOT PRICE at $17.79 and the message of commodities in sharp decline by well respected member blackhead....
How bad could the BURST BUBBLE factor be? and..if in MY shoes......?
PANIC?, SELL?, HOLD?, ...
The only thing I know for sure IS--TO KEEP READING RED STATE!!
Thanks..
A 2nd day of plummeting oil prices, apparently due to a shoring up of the dollar.
I agree with the posters above - I think all BenB would have to do is bump up the rates just ever so slightly, which would modify this "sky is falling" mindset about rates, inflation, and the dollar. That oughta send oil down to the $100/bbl ballpark. And if the securities market doesn't perceive it as a wholesale move to aggressive rate increases, it shouldn't have substantial damage on stocks (like they can get much worse...)
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I don't know economics very well...especially when it comes to commodities..Does this mean the dollar is surging...does this mean oil and subsequently gas prices are going to fall??
Break it down for me brotha.
And thanks in advance.
"Land of the Free and Home of da Whopper" Peter Griffin...Family Guy
conform and celebrate diversity....or else!!!
Steel-Belted Radial Right Winger