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Commodity Bubble Goes Pop! Gary North says "I have just read the most fearful speech I have ever read...by Gov Official"

Recs

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August 08, 2008 – Comments (8) | RELATED TICKERS: OIH , GLD , SLV

"Like Vader I sense danger in the commodity bubble. I have closed most of my commodity longs. So it will go for the First Commodity Bears, who attacks the Commodity Bull. The first ones in will be killed (ref my MOS, MON, POT calls). The guy, who times it right here in CAPS will be a hero and Top Fool, the way the previous Top Fool arrived by underperforming all the homebuilders and residential real estate.

The commodity bubble might have more up side, but long commodities and short the US dollar is one of the most crowded trade in the world today.

But eventually the commodity bubble will be popped. The commodity bubble is the last bubble left by the reckless Central Banks monetary inflation and government overspending. When the commodity bubble pops, like the DeathStar explosion, you had better be clear."

abitarecatania (ref: The Upcoming Top Fool Will Be a Commodity BEAR)

Recs 20 May 27, 2008 – Comments (27) | RELATED TICKERS: GLD , OIH , SLV

OR

Taking the Pulse of the CAPS Blogs: CommoditiesBy Christopher Barker May 29 May 08

Recession = reduced demand = reduced production = reduced consumption = reduction price of commodities

CRB Commodity Index Caps Biggest One-Day Decline Since March

By Millie Munshi

"Aug. 4 (Bloomberg) -- Plunging prices for cocoa, natural gas and sugar sent the Reuters/Jefferies CRB Index of 19 commodities to its biggest one-day decline since March.

The CRB index fell 3.4 percent to 401.98, which marks the largest slide since March 19. The gauge dropped to the lowest level since May 2 today, as did the UBS-Bloomberg Constant Maturity Commodity Index.

The CRB slid 10 percent in July, the most in any month since March 1980, when the U.S. economy was in a recession. A worsening global growth outlook and prospects for increased supply sent raw materials such as crude oil, soybeans and gasoline tumbling from records in the past month. "

I pay for Gary North. He posts four times a day. He has wisdom gained from time and experience, that I lack. He also does not sell anything but advice, which keeps his posts clean of an agenda. He was one of the few to point out the commodity bubble last year. Since I read/follow Peter Schiff and Marc Faber, this is NOT the "most fearful speech" I have read. Watch Dollar Collapse on youtube.com, if you want scary.

"THE MOST FEARFUL SPEECH I HAVE EVER READ"

"I have just read the most fearful speech I have ever read that was delivered by a high-level American official, who is in a position to know what he is talking about. No other speech comes close. I have been reading speecI have just read the most fearful speech I have ever read that was delivered by a high-level American officialhes for a living for over 40 years." Gary North 08 Aug 08.

Storms on the Horizon

Richard W. Fisher, of Dallas FED

Storms on the Horizon
Remarks before the Commonwealth Club of California
San Francisco, California
May 28, 2008

Couple of good quotes:

"We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid.
 
Earlier I mentioned the Fed’s dual mandate to manage growth and inflation. In the long run, growth cannot be sustained if markets are undermined by inflation. Stable prices go hand in hand with achieving sustainable economic growth. I have said many, many times that inflation is a sinister beast that, if uncaged, devours savings, erodes consumers’ purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.

Purging rampant inflation and a debased currency requires administering a harsh medicine. We have been there, and we know the cure that was wrought by the FOMC under Paul Volcker. Even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens, should it take root, is a paramount risk to the long-term welfare of the U.S. economy. The Federal Reserve will never let this happen. It is not an option. Ever. Period."

Read the rest here:

8 Comments – Post Your Own

#1) On August 08, 2008 at 2:48 PM, motleyanimal (88.26) wrote:

It is not inconceivable that the next quarter point rate hike from the Fed will spark a rally.

Be still, my contrarian heart.

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#2) On August 08, 2008 at 3:01 PM, XMFSinchiruna (27.72) wrote:

There is no bubble.  It didn't go 'pop', it said 'bye-bye' to all the weak hands in preparation for the next run up.  :)

There is nothing behind this USD rally except for an orchestrated intervention by a consortium of central banks. This will not have a long-lasting impact. Expansion of the U.S. monetary base continues at a greater speed than ever. 

 

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#3) On August 08, 2008 at 6:36 PM, LordZ wrote:

SON of ******

as I watch my unrealized losses mount.... :-P

but what of all these companies that are going to make i say again make decent earnings,

BHP
FCX

will they continue to fall especially when earnings come out showing that they are making and mining a ton of $$$$$$$$

I say nayyyyyyyy

just wait until you have to pay $20.00 a pound for some top A steak......

drooling....

 

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#4) On August 08, 2008 at 6:56 PM, jester112358 (28.69) wrote:

Don't be fooled by co-ordinated central bank intervention.  All the central banks are buying dollars to prevent a total collapse of the $ based world commodity system which would spark hyperinflation, hoarding and the end of free trade.  There isn't a central bank or government in the world that wants to see that happen-and I wouldn't either.  So, they use their enormous reserves to buy dollars, selling their currency.   This props up the dollar and lowers the dollar cost of commodities and oil.   But, this can only work in the short term.  The real productivity growth and current account advantages of countries like China, Brazil and Australia are so compelling that the dollar will continue its downward spiral.

 Unless you believe the rest of the world doesn't aspire to the standard of living they can observe in the US and Europe, the energy and commodity demand cannot cease or political heads will roll.  These political heads intend to stay on their political bodies-thus full speed ahead for growth in the developing world.    

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#5) On August 09, 2008 at 12:52 AM, AnomaLee (28.52) wrote:

"All the central banks are buying dollars to prevent a total collapse of the $ based world commodity system which would spark hyperinflation, hoarding and the end of free trade. "

How is this different from any other point in the 90+ history of central banks?

The reason that commodities will continue to decline is because the dollar will continue to gain strength vs the Euro.

I don't know how many times I've said that the Euro is over-valued vs the U.S. dollar, but it's still over-valued and will continue to decline. The coming Forex actions of the Euro vs USD will be no different than the Forex actions seen earlier this year with the Yen vs USD.

There is nothing wrong with inflation.
There is nothing wrong with deflation.

The only problem is the time it takes to resolve the velocity of money within the economy.

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#6) On August 09, 2008 at 8:59 AM, abitare (32.19) wrote:

ALCON,

Thanks for the replies. There are some good replies here. I have limited bandwidth and internet access here, so forgive my short replies.

 

There was a bigger discussion here:

TMFSinchiruna,

Take a look at these charts and see if you can see a bubble. Jim Rogers, who likely started the commodity bubble back in 2000. But the prices have gone 3-14X since the start of the "bull market". Now there will be demand distruction with the recession. Commodities may rally again, but there is plenty of room to fall. The world is awash with excess capacity, in cars, planes, condos, clothes etc.....

From: 

The Upcoming Top Fool Will Be a Commodity BEAR  May 27, 2008 – Comments (27)

Three charts to see:

1.
Commodity Index Investment vs. Spot Prices

http://bp0.blogger.com/_nSTO-vZpSgc/SDwwpsrA_WI/AAAAAAAACok/KXFdcp3C00k/s1600-h/Commodity-Index-Investment-1.png 

2. Commodity Index Purchases Last 5 Years
http://bp3.blogger.com/_nSTO-vZpSgc/SDwxdcrA_XI/AAAAAAAACos/o-hN0udv-7Q/s1600-h/Commodity-Index-Investment-2.png

3. Commodity Futures Market Size

Although you might be right here:

"There is nothing behind this USD rally except for an orchestrated intervention by a consortium of central banks. This will not have a long-lasting impact. Expansion of the U.S. monetary base continues at a greater speed than ever. "

LordZ ,

What a company "made" is past tense, you need to make a guess at the future, I am guessing demand destruction due to price inflation and recession.

jester112358

Good reply. I think you have good point. In the long term the dollar is likely to loose its' status as the worlds reserve currency.

"Unless you believe the rest of the world doesn't aspire to the standard of living they can observe in the US and Europe, the energy and commodity demand cannot cease or political heads will roll. "

The demand destruction  is not absolute for energy and commodities, but I think it is significant. Central banks are likely involved too. But the recession is likely global and demand destruction will be global.

AnomaLee,

"The reason that commodities will continue to decline is because the dollar will continue to gain strength vs the Euro."

Concur, but I would add demand destruction from a global recession.

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#7) On August 11, 2008 at 3:20 PM, cubanstockpicker (20.54) wrote:

Very good points And GREAT writeup Ares Financial

Very convincing argument. After being tortured for the past month in points and comments from caps players, I am starting to come right with my guesses.

We can sit here all day and hem and haw about the debt and the american dollar being worth a roll of tissue paper.

The world cannot let the US economy fall, its how China came to power, its how one of the princes of Dubai bought himself a 787 dreamliner with a raquetball court, pool, marble floors, gold throught everywhere and every and any amenity you can imagine.

What will fall are home values, which should be let to fall. Nothing like teaching a new generation of Americans to save, as the Great Depression taught the "Greatest Generation" .

I remember every blog everyday was another person stating how commodities are the way to make it now, oil is at 150.00, corn is 50.00 for one cob at the County fair and pb & J sandwich would be the same price as a value meal. Give me a break.

Can we all conclude now that the run up was speculation? Just like everyone who picked outperform in the past 4 -5 months on ags and other softs were due for a fall?

As for the same issues like mining, etc. No one can afford to keep paying top dollar for crap we buy cheaper if they were selling at a local market or at the farm for way cheaper. They will do it once, but not again.

Maybe now Americans will start learning their lesson from now on and we dont have anymore scumbag lobbyists creating new rules for the game that shouldnt be there in the first place.

Maybe now, the fed will act faster to stop runaway trains as in housing/ags.


As for the ags, farmers are not going to allow these ag bullies earn theri lunch. Next year they wont grow corn or they are switching to crops that demand less intense planting methods, hear NPR's all things considered and you can hear the underlying trend in any big movement. All my recent pics have been NPR stories, when they come out with a story on how expensive seeds are or how expensive POTASH is, I short POT. etc.etc.etc...

NPR also called the housing bubble and oil bubble, not as a stock but as a news report, they dont do stock analysis, they report facts.

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#8) On August 23, 2008 at 6:25 PM, wrote:

I agree with everything said, but ags falling.  I used to be a farm kid.  If oil or diseal prices go up, corn prices go out.  If fertilizer goes up, corn prices go up.  If corn prices go up, soybean prices go up.  Fertilizer prices are cents on a dollar just like diseal prices are cents on the dollar.

Remember corn is prices in cents, not dollars like oil.  Corn may be prices at nearly $6/ bushel, but do you know how much corn is in a bushel????  1 U.S. bushel = 8 corn/dry gallons.  Avg yields are 180 bushels per acre.  An acre is approximately the size of a football field.  Next time you check out a farm imagine how many football fields you can get per 8 rows of corn.  25 0r 50?  Now count the rows per field.  Count the fields per farmer.

$500/ ton of potash adds up to cents on the $6/ bushel on corn prices.  Tons of fertilizer a sh!t lot of an amount of fertilizer.  Enough to stink up a big portion of Iowa or Illinois farmland. 

Farmers have been subjected to price manipulation since the 80's, that i am aware of since i am in my early 30's.

Farmers will not sell their corn for less than $7/ bushel.  They can grind the corn into feed for their lifestock and hold the corn in their grain bins until the price raises.  They already paid for the potash and nitrogen.  And they are tired of being scr*wed by banks and the market.

Who needs the cash 1st, farmers or banks???  I'd say the banks do.

andrew

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