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Who’s right, commodities or the Fed?
.jpg "Who’s right, commodities or the Fed?")
The Pythoness of the Oracle of Delphi
As the U.S. Federal Reserve Bank raised interest rates last week for the first time in 10 years in response to what it said was strength in the U.S. economy, economically sensitive commodities such as industrial metals and crude oil continued to plumb new cycle lows.
Either these commodities are about the turn the corner as renewed strength in the United States–the biggest buyer of commodities next to China–revives industrial metal and crude oil demand–or the Federal Reserve is misreading the tea leaves and crashing commodity prices signal a world and U.S. economy in distress.
Market analysts like to say that copper is the metal with a Ph.D. in economics. Because of copper’s central role in the modern economy, it often reliably forecasts the direction of the economy. Since copper reached its peak at the beginning of 2011 above $4.50 per pound, it has swooned to near $3 in 2011 coinciding with a crisis in Europe, bounced back to near $4 once the crisis passed and then settled above $3 by the middle of 2013 where it essentially traded sideways until this year. After trending down since May copper hit $2.05 a pound last week, only three cents above the low for the year registered on November 23.
And, it wasn’t just copper. Nickel started the year above $7 a pound and finished last week at $3.90 a pound. Aluminum began the year above 90 cents a pound and settled last week at 67 cents. Zinc peaked near $1.10 a pound in May and now sells for 66 cents. Iron ore prices, which dropped almost 50 percent last year, this year dropped from $68 per ton to $47 as of last week, another 31 percent decline.
Crude oil, which dropped about 50 percent in the last half of 2014, has dropped another 35 percent so far in 2015.
So, given this picture of the price trends for basic materials which are key to the economy, why has the Fed concluded that now is the time to start raising rates?
A clue comes from the analysis of Doug Noland who has been following what he calls the greatest credit bubble of all time. Noland explains that the swoon of emerging market countries–which include commodity producing economies such as Brazil, Russia, Mexico and other mineral and petroleum exporting nations–has sent money scurrying to what he calls “the core,” the United States, Europe and Japan. For a while this flow will buoy these core areas by injecting money into their economies and stock markets.
Eventually, the financial rot in “the periphery,” the emerging market countries mentioned above, will reach the core and slow their economies while threatening their financial institutions which hold increasingly shaky debt from periphery countries.
Already indicators show that world trade is slowing as the Baltic Dry Index, which measures shipping costs, crashes to new lows. U.S. manufacturing is now in recession creating “the worst manufacturing climate since March 2009.”
It is always darkest before the dawn, the saying goes. When referring to his own worst investment decisions, legendary fund manager Peter Lynch loved to parody that saying with this rewrite: It is always darkest before it goes pitch black.
In February, I suggested that the already significant decline in commodities was signaling a weak world economy. Since then commodity prices have weakened again and dramatically so. And yet, the stock markets and economies in the “core,” the United States, Europe and Japan, seem to be defying the trend in commodities just as the Fed pronounces the U.S. economy healthy enough for a rise in interest rates.
Either commodities are correctly forecasting the direction of the overall world economy or the world’s “core” economies are about to lead the world economy back toward faster growth. The outcome will determine the fate of trillions of dollars of investments premised on the idea that one of these indicators is right.
22 Comments on "Who’s right, commodities or the Fed?"
onlooker on Sun, 20th Dec 2015 2:56 pm
this is surely a case of sellers attempting to lower prices to attract buyers. well it does not seem to be working this attempt to revitalize the economy. They have tried different remedies and none are working. This is partly due to how interrelated the world economy is so that if you lower prices it will help some and hurt others. But the more underlying and important reason the Fed is misreading the situation is because consumers worldwide are either too much in debt or receiving too little compensation to spur economic growth. The policies of so called competitiveness to reduce costs has now finally reached in logical conclusion, a depressed world of consumers. Things will only get worse as producers also strapped by debt attempt to say afloat in this deflationary cycle. Rebounding prices will not make things better as consumers will even less be able to afford commodities
Anonymous on Sun, 20th Dec 2015 3:17 pm
So, the secretive, privately-held, unaccountable US ‘Fed’ sets interest rates, not just for the empires ‘homeland’, but for its colonies as well. You think Australia, Canada, Britain, many EU countries and others have independent banks that set their own rates and policies? LOL. I am very aware I get less than the rate of inflation on my money, because of the american, zionist controlled ‘fed’, and not my own government’s ‘central bank'(also stuffed to the rafters with zionists). Which in reality, is little more than a local branch of the ‘fed’. I sometimes think my own ‘central bank’ is only kept around to keep us peasants from rioting in the streets over our lack of sovereignty from the US terror empire.
There really should be a lot more public discussion about the true nature of the ‘fed’ and the current state of affairs.
Davy on Sun, 20th Dec 2015 4:59 pm
What is forecasting the direction of the global economy is debt and more precisely bad debt. The books are being cooked. Confidence is being bribed. Natural limits are being encountered. We may live to die another day but death it will be.
penury on Sun, 20th Dec 2015 5:23 pm
I think you are exactly correct Davy. However,it appears that the FED is prepared to bail out some of the banks again.
Bloomer on Sun, 20th Dec 2015 5:46 pm
The Federal Reserve has been telegraphing that they are going to raise rates for the last couple of years (maybe longer). They finally raised rates(.25%) to save credibility.
Its’ very likely that this is a one and done phenomena as the strengthening US dollar is killing what is left of their manufacturing base.
If global growth doesn’t follow through the likely more scenario could be more quantitative easing. The underlying problem of our economy still remains the same: employees’ earnings are still not enough to afford the goods and services that they produce.
Bob Owens on Sun, 20th Dec 2015 5:58 pm
So who is right? The secret Fed, who lives in a Virtual Reality world of computer models, or commodities that are used every day in billions of ways to power our Society? This Author can’t figure it out (but I bet our readers can)!
makati1 on Sun, 20th Dec 2015 7:12 pm
The elite, through their privately owned central banks, have been bleeding the peasants/serfs constantly in their greed and are slowly killing them. The peasants/serfs have no financial strength to do more than struggle to survive. The cheap energy slaves, that capitalist growth requires, are dying off.
With them will go that other capitalist dependent, democracy. We are seeing it in Europe and America today. Both are fast returning to fascism and/or a police state dictatorship. It’s sad when Russia is more democratic and free than the US, but it is.
makati1 on Sun, 20th Dec 2015 8:18 pm
BTW: American property holders…
“FIRPTA was implemented during a better era for Americans in response to international investors in the late 1980s and early 1990s buying U.S. farmland, as well as the more publicly visible buying of trophy U.S. property by the Japanese. The US government has now expediently waived FIRPTA. … The FRA predicts that Americans will face significant increases in US property taxes over the next five years starting in 2016. With the change in FIRPTA Americans should additionally expect property values to increase in 2016-2017….”
http://www.zerohedge.com/news/2015-12-20/obama-abruptly-waives-1980-foreign-investment-real-property-tax-act
Don’t own US property. No problem. LOL
theedrich on Mon, 21st Dec 2015 3:23 am
Let’s see: 1. 1½-year market slump. 2. Three QEs, all for naught. 3. ZIRP, all for naught. 4. Serious oilprice deflation. 5. Oligarchic kleptocracy cloaked as benefits for the masses. 6. Crushing importation of Latino parasites, dune coons, Hindoos and other fun types. 7. Abysmal Afroid incompetence in foreign policy, especially regarding MENA. 8. ISIL & Bros. 9. Tainteresque global complexification and “efficiency” topping out, with little room left for economic improvement. 10. Planetary overpopulation. 11. White genosuicidism, abetted by the Yid Ministry of Propaganda. 12. Regimes of tyrannically immutable “inverted totalitarianism” throughout the West, with serious change impossible. 13. Unremitting exportation of Western industries to World III. 14. Increasing cyber malignancy on all fronts. 15. Dying biosphere. 16. And more, perhaps much more.
No, Virginia. There is no Santa Claus.
JuanP on Mon, 21st Dec 2015 6:03 am
Oil prices at 11 years low, https://www.rt.com/business/326619-oil-prices-brent-us-export/
Davy on Mon, 21st Dec 2015 6:52 am
http://www.zerohedge.com/news/2015-12-20/not-normalizing-and-no-we-dont-have-any-precedent
“What’s completely different, among many other things, is that we’ve never had rates forced so low before, and they’ve never been so low for so long.”
joe on Mon, 21st Dec 2015 8:49 am
They are using this as an excuse that they ‘know’ boom is coming, but they can’t know that, they are not prophets, they know that if you give a billion poor people a few trillion and tell them what to buy, they’ll buy it, that’s the story of the last 30 years. But there’s a cost, it’s called the law of diminishing returns. Either you find new markets or you begin to slow your growth. The FED is really fighting it’s chief enemy, inflation. By having endless rounds of QE and free interest money, so much demand for dollars and other countries actually threatens to cause such massive weakness in the dollar that inflation could reach Weimar Germany levels very quickly, unless they they dampen demand for this type of money and end the dependency companies have for it. Many use it as a way to grow the balance sheet rather than increase sales or engage in development. My view is that right now, commodities are telling the story of the economy. China is not buying, the US is not exporting (because it’s industrial heart is in China now), there was a time when a weak dolor would be a great thing, but now, the US is post – industrial, and so it’s only export is money. The masses won’t enjoy the next 5 years, but if you have a high net worth, foreign money will come in, and so your spending power will grow.
What’s really needed now to really grow the US is pay rises for the poor and middle classes, to be able to put the economy into the overdrive that banksters love so much.
theedrich on Mon, 21st Dec 2015 4:50 pm
Joe, let me repeat to you the same thing I said to Mak: learn the correct use of the apostrophe. « It’s » means « it is. » « Its » means « of it. » As for nouns, « book’s » means « of the book. » « Books’ » means « of the books. »
Also, « they’re » means « they are. » « Their » means « of them. » And, of course, « there » means « at that place, » or, like the pronoun « it, » is often used as an expletive to serve as a pseudo-subject, as in « There are clouds in the sky. »
makati1 on Mon, 21st Dec 2015 8:37 pm
thee, I don’t recall you EVER correcting my grammar. Maybe if this site allowed us to correct something after it is posted, grammar/spelling/punctuation would improve.
However, what is said is much more important than all of those. We are not writing for a composition grade. We are writing to share ideas and thoughts. Some here are not fluent in that most difficult language we call English and even less so in the babble we call American English. That they can speak and write in more than one language is more than 99% of Americans can do. Most Americans cannot even speak their own language correctly. And composition is not even in their vocabulary.
JuanP on Mon, 21st Dec 2015 8:46 pm
Thee, grammar and spelling can be corrected, but your fucked up brain is completely beyond fixing. I think you are the second most fucked up poster on this forum.
JuanP on Mon, 21st Dec 2015 8:54 pm
Thee, I stopped counting the punctuation mistakes in your last comment after I reached ten, fucktard. Talk about kettle and pot!
And Mak is right, it is the content of the comments that is important, and yours leave a lot to be desired. Plus, there are many of us here, like myself, whose native languages are other than English. I am fluent in Spanish, French, Italian, English, and Portuguese. How many languages do you speak, racist prick?
makati1 on Mon, 21st Dec 2015 11:51 pm
JuanP, I give you a standing ovation! Bravo! I admire your linguistic abilities.
I have no aptitude for languages and barely learned enough Latin in high school to get a passing grade. The alternate was Spanish, which I tried in college and failed. Ditto for German. One of the reasons I chose the Ps for my last years: most here speak English as well as Tagalog and a few other dialects/languages. “The number of individual languages listed for Philippines is 186. Of these, 182 are living and 4 are extinct.” What can you expect from an ancient culture and 7,000+ islands. Exciting variety.
I did my homework before I moved here. ^_^
theedrich on Thu, 24th Dec 2015 5:21 am
Let me assure you, JuanP, that I am not limited to English. Since you hate Whites so much, why don’t you return to where you came from? I’m sure you would like it much more among your own muddy kind.
And by the way, Mak, I DID correct your grammar. See http://peakoil.com/business/the-end-of-the-bubble-finance-era/comment-page-1#comment-229542. You prefer to overlook the fact that your sloppiness in writing is just one sign of your sloppiness in thinking.
But that is to be expected by you who swallow the Koolaid dished out by the MSM.
JuanP on Thu, 24th Dec 2015 6:13 am
Theedrich, Your ignorance is almost as big as your racism and stupidity. I am of 100% white European ancestry, just not a racist prick like you. I don’t consider myself better than other people because of my skin color, and I have absolutely no respect for racists like you. Being a racist is one of the most stupid things a human being can be, right up there with a sexist.
If you researched my country, Uruguay, you would find out that the percentage of white people there is the highest in all of the Americas together with Canada and higher than most white European countries, too, racist fucktard. In Uruguay, we completely exterminated the native population, so we have none left. Also, because of the cold weather we never had many slaves because tobacco and cotton were not grown in Uruguay in the slavery days. We only imported a few blacks who did domestic service mostly. Most of the natives and blacks we have in Uruguay are recent immigrants and their offspring.
The USA, on the other hand is less than 80% white according to its own gov stats, https://www.cia.gov/library/publications/the-world-factbook/geos/us.html
https://www.cia.gov/library/publications/the-world-factbook/geos/uy.html
“white 88%, mestizo 8%, black 4%, Amerindian (practically nonexistent)”
So, I will repeat myself for clarity. You are not only a racist prick, but also an ignorant fool and the second worst member of this board, IMHO.
How do you like them apples?
JuanP on Thu, 24th Dec 2015 6:18 am
And, theedrich, you may not be limited to English, but your English is very limited. Have you figured out the more than twenty mistakes you made in your comment above or do you want me to point them out to you one by one? I usually charge for that, since I’ve taught English for over thirty years, but I’d be willing to do it once for free for you, if you want an English language lesson.
theedrich on Thu, 24th Dec 2015 6:49 am
How very funny, JuanP. To whom did you teach English? Mulattoes in Uruguay? Why did you leave your paradise to come to the country of evil Whites? To teach all of us non-muds how to be genosuicidist, no doubt. I don’t think we need your help, since we have plenty of your type already here. Were you imported by a people-smuggling syndicate?
JuanP on Thu, 24th Dec 2015 7:02 am
Theedick, I mostly taught American white trash kids who were functionally illiterate inspite of being high school graduates. Are you so stupid that you still don’t understand that the population in your country is less white than in mine? I guess you must be a functionally illiterate white trash piece of shit. Do you live in a trailer park by any chance? You should get out more. I will ignore you from now on just like I ignore the board’s delusional bully. People like you can’t learn. You are a complete fuck up and getting worse every day.