
Commodities Are Crashing Like It's 2008 All Over Again - cryptoz
http://www.bloomberg.com/news/articles/2015-08-05/commodities-meltdown-hits-2008-levels-of-bearishness
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tinco
Why don't they give a graph of the commodity prices over the past ten years?
Surely commodities like gold are bullish in bear markets? Here gold is a
leader at -40%

What am I missing? (Not an economist)

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pyre
> Surely commodities like gold are bullish in bear markets?

Maybe everyone is pouring their money into Bitcoin to ride out the downturn?
/s

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walshemj
Well some contrarian investors are buying back into commodities as they have
been over sold.

I even brought British Gas as a play on the Takeover by Shell a net 8% yield
is tasty.

I did very well (300%) buying commercial property in the last down turn.

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vegabook
G3 central banks started the printing presses, China (and many others) got the
heebie jeebies about hyperinflation (and their ownership of trillions of US
Treasuries), so they stockpiled commos.

Little did they realise that their own massive structural population shifts
were going to continue to keep global inflation subdued, and so now we're
seeing a wholesale dump of the stockpiles.

This thing was already telegraphed by the tankfest in copper last year. It was
one of the favourite stockpiles and was used as cascading collateral for many
times more than its value in loans (speaking to the equity bubble too). The
old "metal with a PhD". The whole thing is now unravelling.

A conspiracy theorist might argue that "the authorities" (read: the Fed) have
an interest in keeping commodities down, as this allows them to continue to
print. Hence easy money for shale, and, including the convenient side effect
of scr*wing the Saudis, allowing Iranian oil back into the market.

BTW: next stop is western property prices. That's where hundreds of billions
in emerging markets money chasing safety has also gone.

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evanpw
Main Street headline: "Raw materials are getting cheaper"

Wall Street headline: "Market crash: next global catastrophe?"

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im3w1l
You have to ask yourself: are they going down because of increased supply, or
because of decreased demand?

Increased supply should be good for economy as the increased supply of raw
mats cause increased production of higher grade goods.

Decreased demand on the other hand indicates that something is wrong. People
are not buying anymore. Can't they afford it any longer? Or or they decreasing
production due to anticipated lower demand for their higher grade goods?

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evanpw
I actually agree with you; I was just poking fun at the "high price good, low
price bad" tone of the article. Notice the author's apparent relief that a few
commodities have "managed to stay out of the bear market" because of bad
weather and supply problems.

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crdb
I've found it's more "high price bad, low price bad". Bull markets come with
Malthusian predictions and really strong ones with pictures of the fuel lines
in the 1970s.

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tosseraccount
"Are Crashing"? Actually commodity market flat today. The commodities already
"crashed" 45% or so:
[http://finance.yahoo.com/echarts?s=DBC+Interactive#{%22range...](http://finance.yahoo.com/echarts?s=DBC+Interactive#{%22range%22:%222y%22,%22allowChartStacking%22:true})

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cletus
"Are crashing" is appropriate IMHO. Today might be flat but the trend is down
and there's no indication that's halted or reversed yet.

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jim_greco
Is it that surprising? What's the bull case for commodities exactly? Europe
continues to slide in and out of recession. China is slowly significantly and
is structurally trying to change it's economy to be more consumption based.
LatAm is a mess.

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boeing_boing
Remember around 2008-9, when the next big markets were commodities and
futures.

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SovietDissident
From _The Economist_ :

 _" So far this year oil-production firms have raised $15 billion of equity
and $20 billion of bonds, helped by frothy markets, a near-zero Fed Funds rate
and a partial recovery in the oil price. Even Goodrich, the troubled firm in
Houston, managed to issue in February $100m of “second-lien” debt, which is
secured against assets, at an 8% interest rate...

First, consider the juicing-up of performance. During the quarter to March the
industry reported aggregate cashflow from operations of $15 billion—this is
the money the business throws off before capital expenditure and financing
activity. But this reflects the benefit of derivative hedges taken out in 2014
when oil prices were much higher, and which in most cases will largely run out
over the course of the next year or so. Exclude derivatives, and cashflow was
31% lower. Almost half of firms, accounting for 1% of global oil production,
relied on transitory gains from derivatives for over half of their cashflow...

Were the industry to have balanced its books (excluding the benefit of
hedges), capital investment would have needed to be 70% lower. Capital
investment feeds through to production volumes with a lag of 3-9 months.
Today’s healthy production figures are no guarantee of future bounty.

The second concern is a deep well of debt. Listed E&P firms owe $235 billion
and during the first quarter debt rose, reflecting continued heavy spending.
Assume a firm is in trouble if its net debt is more than eight times its
annual cashflow from operations (based on the annualised first-quarter figures
and excluding the benefit from derivatives). On the basis of this snapshot, 29
of the 62 firms are distressed, owing a total of $84 billion. Listed shale
firms with distressed balance-sheets account for 1.1m barrels a day of oil
production, or 1.2% of global oil production...

In Texas and North Dakota oil men secretly dream that the global supply of
crude will shrink without shale declining. The biggest oil firms, which have
vast reserves of cash, are continuing to invest heavily in shale. In May
ConocoPhillips, which says it has some of the lowest-cost shale properties in
America, committed to invest $3 billion a year and forecast rising production
up to 2017. By this account America’s smaller E&P firms are being astute: they
are using their derivatives hedges and their mastery at raising capital on
Wall Street to bridge a difficult patch. When oil prices pick up later this
year they will start investing even more heavily in growth, but with leaner
cost bases. In a decade’s time the 2015 oil-price dip will seem as transitory
as that in 2009 during the financial crisis.

But there is another, less rosy scenario for America’s shale barons. Oil
prices may remain flat. Towards the end of this year their hedges run out;
shale-oil production dips markedly as the lagged effect of capital-investment
cuts kicks in. (Output has already dipped in the Bakken basin in North
Dakota.) With growth evaporating and cashflow faltering it becomes harder to
sell shares—the pace of capital-raising has indeed slowed in recent weeks. The
junk-bond market becomes jittery and E&P firms start to worry about
refinancing the $66 billion of debt and interest that is due in 2016-18. As
firms’ oil-reserves estimates are marked down to reflect lower prices, banks
cut their loans, which they typically tie to reserves figures."_[0]

So if this article is to be believed, these oil companies will probably
survive short to mid-term price decreases, and won't cause huge bank losses at
least for a while. However, this only tells the tale of one commodity; with
Chinese demand for commodities decreasing and the U.S. and European consumers
doing mediocre financially-speaking, we may end up with a significant
downturn. Not to digress, but I personally think the next crisis will be
triggered by subprime student loan debt.

[0] [http://www.economist.com/news/business/21656671-americas-
sha...](http://www.economist.com/news/business/21656671-americas-shale-energy-
industry-has-future-many-shale-firms-do-not-fractured-finances)

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notNow
To give perspective to people here, the movements in the commodities market
before 2000 were very tepid but post the dot com bubble burst and the ensuing
recession that commodities started to experience upward pressure and then come
the 2003 Iraq War oil shock and then commodities just took off till the crash
in 2008.

For more info, check this Wikipedia entry on the commodities super cycle
[https://en.wikipedia.org/wiki/2000s_commodities_boom](https://en.wikipedia.org/wiki/2000s_commodities_boom)

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nosuchthing
Amazing how the stock market 'investor' language and mindset thinks of
increases in costs of commodities as a positive thing.

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pjlegato
If you think about it, it makes a lot of sense. It is not the case that
investors are simply greedy and want higher prices so they can make more
money. Economies are not a zero-sum game where people can only make money when
someone else loses it.

Commodities are the basic inputs into other overall economic activity.
Glossing over the details, if commodity prices are falling, it means that
overall economic activity is faltering. It means fewer commodities are
required because fewer higher order things are being produced with them. It
means more people are out of work rather than building stuff.

Conversely, high commodities prices means there are lots of people willing to
buy them at high prices. This implies that lots of new stuff is being built --
otherwise, nobody would pay those high prices, and prices would fall. It means
that lots of people are working productively and lots of new value is being
created.

~~~
nosuchthing
Inexpensive commodities _should_ be a universally positive goal. Scarcity is a
plague we need to cure.

Strains on supplies of commodities, driving prices upward only indicates
supply scarcity, not necessarily related to widespread creation of material
goods.

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pjlegato
Getting rid of scarcity is great as a long term goal, but it's not happening
any time soon. The technology does not exist yet to do so, which is why these
things are still traded for money. This goal is unfortunately not relevant to
commodity price movements on human time scales, and falling prices shouldn't
be interpreted as evidence of scarcity no longer existing. Commodity prices
don't fall because someone invented a great new way to get corn or oil without
labor or fertilizer or land; they fall because of short-term supply and demand
imbalances.

Upward prices does not only indicate supply scarcity. It might indicate supply
scarcity, or it might indicate increased demand. There are two sides to the
market, and either can move the price. Prices are not "driven" upwards by some
teleological entity that just wants higher prices; the action of people buying
and selling finds a consensus equilibrium based on supply and demand.

If one commodity price is going up, it might be the case that there's a supply
shortage. If all are going up, it indicates broad based demand due to a
healthy economy that requires more inputs. Broad supply scarcity rarely if
ever extends beyond a few specific commodities. Oil might be scarce, but _all_
commodities being scarce almost never happens. Commodities are widely produced
in many diverse locations all around the world by groups with widely different
goals.

If the average price of _all_ commodities is rising broadly, it's demand-
driven, not supply constraint. Barring events like a world war, there will
never be a massive simultaneous supply shortage in oil, wheat, corn, soybeans,
cattle, hogs, gold, silver, and frozen orange juice. A broad price rise is
thus generally a good thing since it means lots of people have jobs producing
things and are making money to buy things that require these inputs.

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sbt
oh BuzzBorg, always with the clickbait

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janesvilleseo
Not trying to time the market, but this seems like a good time to buy?
[http://www.kitco.com/charts/popup/au1825nyb.html](http://www.kitco.com/charts/popup/au1825nyb.html)

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tinco
How is that not trying to time the market? Anyway, it's a good time to buy if
you expect a downturn similar to what happened in 2008, and belief others are
not more pessimistic than you. If you are confident in that then yeah, bet
your life savings on it ;)

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janesvilleseo
Cool!!! I just mortgage the house, my life savings, and my kids college fund.
Off to sell all my hard assets to muster up some more cash to invest. It can
only go up ;)

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kazinator
> _I just mortgage the house, my life savings, and my kids college fund._

Into what? Hogs or soybean meal? :)

Maybe hedge between the two: that way you have something to feed the hogs.

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janesvilleseo
Good idea. I like the way your thinking. But I was thinking of adding in
Nickel. That way I really can leverage the saying "If I had a nickle every
time <blank> happened".

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kazinator
Not to mention, "don't take any wooden nickels".

