Continued freefall in commodity prices will make 2001 appear as a "walk in the park."

Discussion in 'Wall St. News' started by ByLoSellHi, Oct 13, 2008.

  1. http://www.bloomberg.com/apps/news?pid=20601109&sid=aSXOy1LNQ_FQ&refer=home

    Notable quotes:

    '`Irrational' Concern

    ``This is going to be a longer recession than the last four, over three decades, where the average duration was about 12 months,'' Feldstein, who retired in June as president of the National Bureau of Economic Research, said Oct. 8 in a Bloomberg Television interview. ``It is going to be deeper in terms of decline'' in output, he said.

    ``We've entered the realm of irrational anti-exuberance,'' said Doug Hepworth, a research director at New York-based Gresham Investment Management LLC. ``Commodities are part of it.'' '



    Commodity Rout Far From Ended as Recession Approaches (Update1)

    By Claudia Carpenter and Millie Munshi

    Oct. 13 (Bloomberg) --
    The record 39 percent decline in commodities since July 3 is nowhere near finished, if history is any guide.

    The Reuters/Jefferies CRB Index of 19 commodities from coffee to silver would have to drop another 37 percent to reach the trough of the 2001 recession and 35 percent for the 1998 slide, when crude bottomed at $10.35 a barrel. The measure is 28 percent above its lowest during the economic contraction that ended in November 1982. Copper, after its biggest weekly loss in two decades last week, is still triple 2001 levels.

    While tumbling prices of oil, nickel and soybeans already crippled stock markets from Moscow to Sao Paulo and sliced Alcoa Inc.'s profits by 52 percent, investors say rising stockpiles of copper and slowing energy demand mean prices will continue to fall. The U.S. slowdown will last more than a year and be deeper than any in three decades, according to Harvard University economist Martin Feldstein, a member of the committee that charts American business cycles.

    ``This downturn is going to make 2001 look like a walk in the park,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd., who sold all his commodity investments in July. ``This is the bursting of a 25- year asset-credit bubble. People have really stopped spending money, everywhere.''

    The CRB ended Oct. 10 at 289.89 after losing 11 percent during the week. The index gained 29 percent in the first half, the best start ever to a year, before tumbling 25 percent in the third quarter.

    Forecasts Slashed

    Goldman Sachs Group Inc. of New York cut its 2009 estimate for lead by 17 percent and copper by 12 percent on Oct. 1. Zurich-based UBS AG said Oct. 6 nickel will be 32 percent lower than previously forecast, while platinum will be 50 percent less than anticipated. Morgan Stanley of New York reduced its 2009 aluminum estimate by 20 percent three days later and palladium by 45 percent.

    Crude oil at $77.70 a barrel and copper at $4,790 a metric ton, the Oct. 10 closing prices, are at least 46 percent below their July peaks, signaling an end to record profit for Freeport- McMoRan Copper & Gold Inc., the biggest publicly traded copper producer, and energy producer Exxon Mobil Corp. in Irving, Texas.

    Exxon's earnings may fall more than 2 percent to $45.9 billion in 2009, the first drop since 2002, according to data compiled by Bloomberg. The company is scheduled to report its next financial results on Oct. 30. New York-based Alcoa said Oct. 7 third-quarter earnings dropped by more than half to $268 million. Freeport-McMoRan of Phoenix said July 22 that second- quarter profit fell 14 percent to $947 million.

    Billions Lost

    Steel, metal and related producers of basic materials are the worst-performing group this year in the MSCI World Index, losing 48 percent so far, a larger decline than banks and energy companies. Exxon Mobil plunged 20 percent last week to $62.36 in New York trading.

    Russian shares, dominated by commodity companies including OAO Lukoil and OAO Gazprom, lost 62 percent this year, helping to wipe $230 billion from the wealth of the nation's 25 richest people in five months. Brazil's Bovespa index, led by Petroleo Brasileiro SA and Cia. Vale do Rio Doce, tumbled 52 percent from its high in May to 35,609.54.

    The median estimate for U.S. growth next year in Bloomberg surveys of economists has declined in eight of the last nine months, with the odds of a recession now pegged at 90 percent, compared with 50 percent in May. The U.S. economy will grow 0.1 percent next year, according to the International Monetary Fund.

    `Irrational' Concern

    ``This is going to be a longer recession than the last four, over three decades, where the average duration was about 12 months,'' Feldstein, who retired in June as president of the National Bureau of Economic Research, said Oct. 8 in a Bloomberg Television interview. ``It is going to be deeper in terms of decline'' in output, he said.

    ``We've entered the realm of irrational anti-exuberance,'' said Doug Hepworth, a research director at New York-based Gresham Investment Management LLC. ``Commodities are part of it.''

    A slowdown is already leading producers to cancel projects, which may restrict supply and limit the drop in commodity prices.

    OAO Polyus, Russia's biggest gold producer, said this month companies are reviewing projects because of the credit crunch that sent the three-month London interbank offered rate for dollars to 4.82 percent last week from 2.79 percent three months ago.

    Russia's largest steelmaker, OAO Severstal, said Oct. 10 it will slash output in Russia, the U.S. and Europe by as much as 30 percent. The Organization of Petroleum Exporting Countries called a meeting for Nov. 18 and is ``very likely'' to cut output, President Chakib Khelil said Oct. 9.

    Cutting Output

    Analysts surveyed by Bloomberg expect oil to average $100 next year, 23 percent more than the current forward prices. For copper, analyst estimates are 38 percent higher.

    Futures on the London Metal Exchange show investors disagree. The contracts suggest copper will cost $4,823 a ton a year from now, compared with $4,869.50 for the closing price of the contract for immediate delivery on Oct. 10. Crude oil for delivery in October 2009, traded on the New York Mercantile Exchange, is at $82.24, 5.8 percent more than the contract closest to delivery on Oct. 10. Copper peaked this year at $8,940 a ton and oil at $147.27.

    ``These curves are discounting huge declines in demand that I don't see happening,'' said Pete Sorrentino, who manages $16.5 billion at Huntington Asset Advisors in Cincinnati.

    Commodities Advance

    Crude oil rose as much as 5.1 percent today and copper and most other commodities also advanced after governments in the U.S., Europe and Asia pledged to avert a collapse in the financial system.

    Copper stockpiles in warehouses monitored by the London Metal Exchange rose 92 percent since a May 7 low to 209,400 tons. Combined with reports from bourses in Shanghai and New York, inventories are equal to 4.6 days of global usage, compared with as little as 3.2 days in July.

    The International Energy Agency, the adviser to 28 nations, on Oct. 10 said oil demand next year will be 440,000 barrels a day less than anticipated a month ago, at 87.2 million a day. This year's gain will be the smallest since 1993, the Paris-based IEA said.

    Growth in global crude consumption slowed to 0.3 percent in 2001, from 1 percent the previous year, according to BP Plc data. Demand shrank 0.1 percent in 1991, the first decline since 1983, the data show.

    Presidential Election

    ``We won't see these prices going back to their record highs anytime soon,'' said Catherine Virga, an industrial metals analyst at CPM Group Inc. in New York, a consultant to companies including Barrick Gold Corp. ``The economic outlook is bleak. The weakest point will be in the fourth quarter of this year and the first quarter of next year.''

    U.S. economic growth, a subject that has dominated debate before the Nov. 4 presidential election, will drop to 1.6 percent this year and 1.2 percent in 2009, from 2 percent in 2007, according to economists surveyed by Bloomberg. During the last U.S. recession, growth slowed to 0.8 percent in 2001 from 3.7 percent in 2000.

    ``I don't see any optimism for commodity markets until well into the second half of 2009,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``Banks are really overestimating how soon the turnaround will come. We're mired in a global economic recession.''
     
  2. Perhaps, but with the massive printing of money now on with all these bail-out packages and money thrown at the system in order to stabilize it, this should eventually turn inflationary again, I would think.
     
  3. I would have agreed with this post on Friday. But as of 2am EST I have to disagree.
     
  4. Daal

    Daal

    okay we are getting close to the bottom
     
  5. jjf

    jjf

    The bottom of what?
     
  6. Amazing how China's growth has been fluctuating lately.
     
  7. The same way commodities made a perma-revaluation higher in the 70's they've done the same in the past two years. That's not to say the corrections-like this one-won't be frequent and severe. Anyone waiting though for Corn or Wheat to trade under three dollars again or Oil under 40 will be waiting for Godot.......
     
  8. MGJ

    MGJ

    Wouldn't it be cool if there were a way to profit from falling commodity prices? Like, if you were able to short individual commodities, or short baskets/portfolios of commodities? Then this "freefall" would be a profitable event, and the faster the fall, the greater your profits. While other people are moaning, you'd be dancing around your computer yelling Ka-CHING!!
     
  9. sumosam

    sumosam

    ofcourse there is,,...etf's to short gold.....my projectn $600...oil,grains
     
  10. S2007S

    S2007S

    WAIT JUST A MINUTE, I thought there was a commodity boom and that buying anything commodity related was going to be the best investment since the dot com age....


    WHERE are the fools who hyped up commodities, please step forward, how can any fool possibily think that commodities were going to continue their surge after the US went into a recession nearly a year ago.


    Commodities are done with, with a global recession commodities will continue to fall.
     
    #10     Oct 13, 2008