All should remember that anything that has risen in price in a manner consistent with hard and soft commodities, including oil, typically take the escalator up, but the elevator down.
The GSCI is up about 125% since Jan 2007. In Euro terms it is up 87% over the same period. Thus currency factors are only determining a minority of the current move. Even in Euro terms (the strongest major currency recently), commodities are up a hell of a lot.
This attitude is fine if markets go unmolested. But if economic illiterates convince themselves, or get lured by some demagogue into believing, that "evil" and harmful speculation is the cause of their problems, who says you are even going to be able to trade? Look at India where politicians have shut down the futures markets recently. This kind of ostrich mentality has historically proven to be a really damaging approach. You can be apolitical without negative consequences only in a genuinely free society with total respect for rights. The latter has never existed, and history has shown that unfortunately people *do* have to take concrete steps to stop the retards from implementing destructive policies. You make the personal choice to free ride on the efforts of others, that's your prerogative. But it is rather naive IMO to advise other people to also follow the strategy of ignoring a threat in the hope that it will go away of its own accord. These dunces need to be put in their place, lest others follow them.
You are absolutely correct, the increase in commodities had it's roots in '03. Again this is caused primarily by anticipation of the inflation that would follow the drastic easing of rates that occured in the US Central bank in '03. All the major financial institutions have economists on their staff, and these economists understand very well the mechanism by which debt leads to monetization (in fact economists invented this term) which in turn appears in the economy as inflation. It was very clear by '04 that inflation would pick up steam and those managing major funds were positioning to hedge against it. What we see now is the culmination of that process, but it is not over by a long shot. I'm sure you are not surprised that the average person in the US is puzzled by the steep rise in oil prices. They are told that the rise can not be explained by an increase in consumption, so they naturally suspect some skulduggery. What is not being explained to them, and even some congressmen don't seem to grasp this, is that commodities are used as a hedge against inflation, and in times of heavy inflationary pressure this is a major contributor to commodity demand. So not only do you have the increased cost of commodity production in the US, but you also have increased demand on top of already rising prices. It's a compounding effect, and inflation in the US affects commodity prices worldwide, but of course the rise is not quite so steep in countries with stable currencies. I am not, however, dismissing entirely the other contributions to commodity demand, including the possibility of skulduggery. It will be very interesting to observe what happens to prices from here out. My guess, and it is only that based on experience, is that when the Fed begins to tighten we will see an easing of commodity prices, and we may see some easing before that once all the whales believe they are sufficiently hedged. If there are factors such as amount of storage playing a role in futures speculation, then that can also cause an easing of prices. If we see a sudden and precipitous drop, which i don't anticipate, that would surely be a sign that excess speculation and perhaps skulduggery is playing a major role. I'm not anticipating the latter, but i have often been wrong in the past. Inflation in the US will surely result in a reduction in consumption, especially of oil, but i don't think that will result in anything other than minor easing of prices. For example, the US halting of purchases for the strategic reserve should result in barely more than a blip, if that. It seems the Fed must be counting on the recession to cool inflation by decreasing consumption. We'll see, won't we?
Not if you're long already. I will say this, though; If any of the stocks I currently own or have optioned decline, I'll buy more. I can honestly say that.
Yeah, that was some idiotic trade (buying Euros). That chart really supports your point. One question though: WTF are you talking about?!??
the posts on this thread in regards to the article mentioned at the beginning,including my own,point out the glaring fact that traders have no clue about what's really going on and should constantly be a reminder to us all that knowledge is power and we have neither,so trade scared and smart and don't ride your losses
Excellent Commentary All ..................................................... This is a rather simple process.... First find any basic commodities type average economist in any of the country's land grant agricultural colleges who happen to send students to have jobs such as determinig futures contract longevity and viability.....before futures contracts are actually launched.... Now simply back out all of the futures relationships to the cash market....and perform the proper price sensitivity studies on their basic SAS programs.... It would take all of 10 minutes to figure out that futures contracts once removed have a very significant impact on prices.... This is not rocket science.... But what is particularly telling is when you see US government officials in the Bush Administration continually blurt out blatant lies....which have to be lies....because they are not stupid....They are just trying to legally complete their own missions....in the face of the public.... It is incredulous....and very telling....
"Whatâs been happening since 2004 is very high prices without record-low [oil] stocks. The relationship between U.S. [oil] inventory levels and prices has been shredded and become irrelevant." â Jan Stuart, Global Oil Economist, UBS Securities http://www.star-telegram.com/ed_wallace/story/659081.html Sorry but know one will convince me that this time its different. Its a bubble plain and simple, problem is a lot of innocent people are being hurt.