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What about these forecasts?

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April 08, 2008 – Comments (8)

Bespoken has a post on median analyst expectation on commodity prices.  I am sure commodity bulls, and gold bugs will have something to say about it and I think this post will be an interesting one to check back on in a year.

8 Comments – Post Your Own

#1) On April 08, 2008 at 11:09 PM, nuf2bdangrus (< 20) wrote:

It depends on how shamlessly the Fed abuses our FIAT currency, down 80% from 1970.  WIth our cuts exporting inflation to every dollar pegged currency, other banks will have no choice but to devalue their currencies or buy dollars.  The next crunch will be a currency crunch.  It is the logical extent of banks always abusing currencies to solve problems instead of letting the marketplace clear them.
  The things we need will get much more expensive until rates are raised.

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#2) On April 08, 2008 at 11:24 PM, GS751 (27.57) wrote:

buf2bdangrus I agree.  With commodities a lot has been blamed on the speculators but when you look at the open interest data it dosent make sense.  I believe our current commodity prices are a reflection of policymakers inability to adress important structural imbalances in the economy.  Dwot you do think commodities are a bubble, but I have long positions in commodities for several reasons.  1. Structural changes have pointed out that there is a new upward bias in prices.  The excess demand comes from one class of buyers of commodities (index funds), has created somewhat of a price floor.  Any short term decline wil be treated as a buying opportunity by them.  This upward bias will increase as speculators see that the odds of success on the short side decrease.  Also the supply and demand picture is not out of wack.  

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#3) On April 09, 2008 at 12:14 AM, FleaBagger (28.76) wrote:

buf2bdangrus is a cool name, GS751. Ha ha. Just teasing.

dwot -

That's a funny article! It would be almost as funny even if it weren't supposed to be serious. 

I made the front page!

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#4) On April 09, 2008 at 4:08 AM, DemonDoug (48.37) wrote:

dwot, i think the one comment on that blog says it all:

"This forecast could work if the u.s. dollar goes up about 33% over the next few years."

what's your forecast for the dollar there deb?

oil analysts in recent years have been very conservative, and companies try to keep their margins by planning for decreasing prices in oil.  That doesn't mean that oil is going to be decreasing in price though, and I still foresee oil at 120 before it hits 80.  Further, my own price target is 200/barrell by the end of 2010 (and that is, I believe, conservative, I fully believe it could be 300/barrel or more). 

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#5) On April 09, 2008 at 9:16 AM, AnomaLee (28.73) wrote:

These forecast aren't worth the TP in my bathroom. I remember in 2006 and even as recent as late-2007 that analyst predicted crude oil prices in 2008 would be in the mid $60 range. There's still pundits that think that, but I can't see it when I go to the gas station.

That's a completle change dwot. So, you're trusting the analyst now? Are you fully invested too and have all your assets managed by Merrill Lynch too?

That means it's time to buy 

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#6) On April 09, 2008 at 9:28 AM, dwot (46.92) wrote:

Well Doug, if we see $200 oil I hope I can buy $2 US with $1 Canadian...  I only see $200 oil if there is massive inflation and as far as I know so far treasury hasn't picked up its printing.  I don't think the fundamentals are supporting the current price of oil, but rather it is speculation.  I'm past making predictions on where exuberance will take the market.

Like I said Fleabagger, it will be interesting to look back in a year.

GS751, yes I do believe commodities are bubbled, well, base metals.  I see signs of the whole world slowing down and that is going to affect the demand side of them, yet there is still enormous activity to increase supply.  It is going to cause price declines and squeeze margins.  At 10% price decline can cause a 20 or 30 or even 40% decline in earnings.  You also have the other problem of "earnings" in mining stocks from selling off equities through the bull and having their earnings increased by these one time only equity gains.  I was looking at Breakwater this week, a zinc mining stock on the Toronto exchange, and it had a 9c/share loss in Q4 to end the year with 6c EPS whereas the year before it was something like 40-50c EPS.  Probably 3/4rds of the positive earnings disappeared because the lower commodity prices, so zinc was down 38% from the peak, probably about 20% less on average, and their earnings from operations decline by about 75%.  The rest of the loss looked like equity type losses, and perhaps since the quarter was trash, as the year was, they put any loss they could into it.  I see this kind of thing playing out in other mining stocks.

nuf3bdangerous, I think the money supply is such that it hasn't trickled though the economy yet and without a contraction in the money supply we see huge cost increases.  The only thing we've really see the money supply hit are the things at what I think of as at the bottom of the pyramid.  So, copper, zinc, oil, etc. are up 300-400% since the turn of the century and those input costs have not worked their way into the economy.  You have factories that still producing goods that were built when input costs were 1/4 of what they are now.  Things coming out of those factories are being sold for unsustainably lower prices when you consider the cost to start a new factory.  Maintenance and replacement costs are way out of line with historical costs because of the input costs of material.  This stuff takes much longer to work through the economy, even years and things are upgraded gradually, price increases happen gradually.

I think the increases in costs are already coming with status quo as the increases in money supply simply have not worked their way into everyday life.  If we don't see a contraction in the money supply, we eventually see another 2-300% increase in the rest of our costs, to match the increase in the money  supply already out there.  I don't think wages keep up with cost increases.  Even with some contraction of the money supply, I think we still see the effect of increased input costs working through the economy.

At least that's the way I think about what is happening. 

Keeping rates artificially lower at this point isn't increasing the money supply any more.  Investors are not lining up to accept those rates and the rate spreads have reverted back to pricing risk back into them.  Personally, I would not put a penny of my money into US treasuries or anything supposedly safe at any rate.  I would consider a hard asset, but not at a bubbled price.  I think that my type of sentiment is increasing, although I am extreme.  But, the bar for being able to attact money for government debt is increasing.

This plays out one of two ways, rates have to be increased, or money has to be printed.  Print money and not only do you deal with the increase in money from what is printed, but you deal with dollars out of circulation due to being held by foreigners coming home at the same time.  Actually, the US will probably see increases in prices from this as well. 

The US has never seen true price increases from increased money supply because other countries have constantly bought up the increased money supply.  I think it has given the US a priviledged lifestyle.  I suspect the US has more people in the world holding some US currency than any other foreign currency in the world, and I also suspect that none of the "expert" models take this into account.

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#7) On April 09, 2008 at 9:43 AM, dwot (46.92) wrote:

AnomaLee, read it again and tell me where I have said what I think?  I haven't said what I think at all, I have pointed to something that will be interesting to look at in a year. 

Now, if you go back and read my stuff, I do think that oil and base metals will have a downward correction and margins will be squeezed in commodity stocks.  I truly have not given an prediction on gold or silver as I really don't know what to think, but I have said if I was American, I would probably want some gold as a currency hedge.  However, Europe is 57% of the USD and the Euro isn't a healthy currency either.  I have said that if I was interested in gold I'd be buying the bullion rather than a stock, although I picked up a speculative junior gold stock in my hubby's portfolio last month.

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#8) On April 09, 2008 at 9:59 PM, GS751 (27.57) wrote:

I am focusing more on the physical product versus the companies.  If I am bullish on a certain commodity I would rather buy the outright commodity than have an indirect equity play.

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