Even as oil continues its parabolic blow off, the commodity heavy Canadian market put in what appears to be a significant top. The MACD rolled over long before prices did. Now that prices are oversold, any strength can and should be used to build short positions.Toro’s Running Of The Bulls caught this early in Canada Rolling Over.
With the world’s emerging economies now in full monetary tightening modes, with the ECB in full inflation fighting mode and with the US Fed in no position to loosen the spigot any further, expect a significant turning point in commodities.
Commodities Signal Bubble Bursting as First-Half Ends (Update2): “Commodities are heading for their best first half in 35 years. The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.
The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent this year, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show.
High costs are slowing the pace of demand for gasoline in the U.S., and gold purchases in India, the biggest buyer, plunged 50 percent from a year earlier. Producers are expanding supplies of wheat in the U.S. and steel in China.”
Demand destruction is accelerating, while supply growth has reached furious levels as large projects start to go online. Demand destruction in the US is clearly evident in $200 Oil: World Economy Would Collapse. But more importantly, the real demand destruction will come from when Oil Drops on Subsidy Cuts in China, India, Malaysia, Taiwan.
“Demand is slowing for copper after the metal jumped 28 percent this year and reached $4.2605 a pound May 5, the highest ever, partly because of temporary supply disruptions in Chile, Peru and Mexico. China said June 10 its copper imports fell 19 percent last month to the lowest since August. Buyers in China, the world's biggest metals importer, are “price sensitive,” according to Freeport-McMoRan Copper & Gold Inc., the world's second-largest producer.
Gold demand from jewelers, the biggest users, has stalled since September, London-based UBS AG analyst John Reade said May 29. After reaching a record $1,033.90 an ounce March 17, gold will average $850 this year and $750 next year, he said. The World Gold Council said May 20 that first-quarter demand fell to a five-year low.”
A slumping global economy will viciously slash ALL demand for ALL commodities as a period of unsustainable ‘super, hyper’ growth comes to a sudden end in ALL emerging economies from Brazil to China.
European Prices Rise More Than Forecast as Oil Surges (Update2): “Inflation in Europe accelerated more than economists forecast, eroding consumers' spending power and adding to pressure on the European Central Bank to increase borrowing costs even as economic growth cools.
The inflation rate in the euro area rose to 4 percent this month, the highest in more than 16 years, from 3.7 percent in May, the European Union statistics office in Luxembourg said today. Economists had forecast a 3.9 percent rate for June, according to the median of 38 estimates in a Bloomberg survey.”
Put it all together, and it is finally time to build larger short positions in commodities for the longer run through some inverse ETF’s.
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12 comments:
nice post.
you think there is still more bleeding/damage to be done in the financial sectors?
SKF has been good to me over past 3 months...but don't want to get too greedy.
A bounce is possible in the financials.
Ben, what does the demand destruction for commodities do to the markets in the next 6 months? How low will oil prices go before demand grows again? If high prices stagnate demand, the lower prices you predict should increase demand and stimulate the markets.
I think the demand destruction you speak of is making many equity investors nervous. Since they dumped way more than they should have into hedges.... I think you will hear a few more spout off about supply and demand a few more times to keep prices up until they can find something else to put all this money in. No matter what happens next....the credit mess moved this bubble around and eventually it has to pop altogether.
Want to see demand destruction?
Go read 364. THE OTHER "PEAK OIL"
isn't it about time to move from DIG into DUG? Oil pricing needs to let some steam off at some point, no?
Prevailing systemic risk breakdown suggests the wisdom of investing in gold over short selling.
Granted a slumping global economy and termination of subsidies will slash usage demand, but an investment demand for gold is coming from a financial breakdown stemming from the one or more of following factors:
1) bond insurers failure, MBIA, MBI, and Ambac, ABK,
2) mortgage insurers failure PMI Group, PMI, and MGIC Investment, MTG,
3) commercial lending gridlock failure, CIT Group, CIT, and Capitol One Financial, COF,
4) mortgage GSE failure, Fannie Mae, FNM, Freddie Mac, FRE,
5) run on home loan savings and loans and banks Wachovia, WB, or Washington Mutual, WM,
6) run on money center banks, Bank of America, BAC
In other words the immediate potential of chaos is going to be a greater investment mover than a bursting commodity bubble.
A systemic risk event or risk events will soon cause an immediate investment demand for gold: gold will likely gap limit higher in price for many days.
When the systemic risk event occurs, that is when the financial system breaks down, one may not be able to have access to one's wealth, I recommend that one dollar cost average an investment in gold in the gold ETF, GLD, in a trust account over the next two weeks, as well as a dollar cost average purchase of gold at both BullionVault.com and GoldIsMoney.com.
The analysts quoted on gold are speaking as if investment demand does not exist. Notice the word "users". These analysts are just another set of people talking up their book: jewelery, which suffers during times of high gold prices.
Nice post. It is interesting to see demand destruction. I am still more and more surprised about demand for oil. It looks it is totally non-flexible and it makes a strong pressure on inflation. I am dealing with Toronto condos so I can see another consequence. Mortgages still need to lower key rates to make them more affordable but lowering key rates it’s quite inconsistent with higher inflation then expected.
Nice post. It is interesting to see demand destruction. I am still more and more surprised about demand for oil. It looks it is totally non-flexible and it makes a strong pressure on inflation. I am dealing with Toronto condos so I can see another consequence. Mortgages still need to lower key rates to make them more affordable but lowering key rates it’s quite inconsistent with higher inflation then expected.
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