The commodity Supercycle structure and why the big boom is just ahead. There is some evidence to suggest that commodity prices move in long term "supercycles". Between 1862 and 1999, long booms were followed by large slumps, resulting in cycles of several decades. 28 Dec 2011 By Peter SchiffCommodity prices can be very volatile, often times more so than just about any other asset class. These large price swings, which have been particularly evident in recent years, have given commodities their reputation for high risk.
Commodity booms and busts often times last far beyond the time frame normally associated with a typical business cycle. For example, after hitting lows in 1868, prices then followed an uptrend until 1907, when they reversed course and drifted downward until 1915. For much of the late 1990s and early 2000s, booming commodity prices lent powerful support to the idea that the world was locked into an uptrend of a supercycle. But the rapid price rebound from the lows of 2008 and 2009 has challenged these conclusions. On Commodities and Setting Margins. A Commodity Price Blowoff? This Can't End Well. Mercenary Trader » Global Macro Notes: Commodity Carnage and Speculative Froth. It had recently been argued there is a $20 per barrel “speculative premium” built into the price of oil. (Via Niels Jensen, citing Frank Veneroso of Veneroso Associates.)
If so, nearly half that premium was evaporated in a single trading session, via Thursday’s commodity complex carnage. (Will cinco de mayo be remembered as a day of massacre for real asset bulls?) Just about everything commodity related got smoked, with oil — arguably the most important commodity in the world — leading the record rout with a 1,000 basis point drop. And as Bespoke has noted, silver’s 4-day decline of 25%+ (still ongoing?) Counts as the third worst sell-off of all time for the poor man’s gold. As my colleague Mike McD instant messaged near Thursday’s close: “So what was that between 2:30 and 3:30 — mass margin related liquidation?
It is likely an elephant was brought to its knees by this move — and quite possibly a whole herd of them. “As long as the music is playing, you’ve got to get up and dance. Commodities: This Time is Different. Who wants more commodities transparency? | FT Energy Source | FT. A New Normal for Commodities? - Two years ago I examined the history of commodity prices just as the peak in the CRB raw materials index was being reached.
I had the following highlights and questions at that time: 1. The cyclical history of commodity prices placed August 2008 in the middle of the time window when a new minimum should occur, and we were at an all-time high. (In less than a year we reached a new minimum.) 2. The inflation adjusted value of the index was in a region not seen since the high inflation period of the 1970s. 3. 4. 5. See the following graph from the 2008 article as you review the above points and questions: Today David Rosenberg, chief economist for Gluskin Sheff in Toronto, posted an updated version of a graph I had on my 2008 article: What is not shown is the time period prior to 1972 where the 20-year average for the CRB index averaged around 115 compared to the 1974-2007 average around 280.
Want more from this author? Follow and be the first to know when they publish. Follow John Lounsbury New! Raw materials: The revenge of Malthus. A blob in commodity flows. The ‘Financialization’ of Commodities - Real Time Economics - WS. COMMODITY TRADERS: The Trillion Dollar Club. By Joshua Schneyer NEW YORK (Reuters)- For the small club of companies who trade the food, fuels and metals that keep the world running, the last decade has been sensational. Driven by the rise of Brazil, China, India and other fast-growing economies, the global commodities boom has turbocharged profits at the world's biggest trading houses.
They form an exclusive group, whose loosely regulated members are often based in such tax havens as Switzerland. Together, they are worth over a trillion dollars in annual revenue and control more than half the world's freely traded commodities. The top five piled up $629 billion in revenues last year, just below the global top five financial companies and more than the combined sales of leading players in tech or telecoms. U.S. and European regulators are cracking down on big banks and hedge funds that speculate in raw goods, but trading firms remain largely untouched. How big are the biggest trading houses? And it's not just the Europeans. Commodities Forecasting: Isn't There a Better Way? -- Seeking Al. David Threlkeld with metals trading advisor Resolved Inc. got some press this week. That happens when you predict a catastrophe.
Threlkeld was quoted by Bloomberg repeating an ominous prediction he first made in May 2006. The call? That the copper market is heading for a catastrophic collapse. With the LME price falling to below $1 per pound. Threlkeld has some credentials. His arguments on the coming copper crisis make some sense. Threlkeld's call adds to an ever-present tapestry of forecasts on metals prices by thousands of analysts globally. People watching commodities markets love to make predictions. Pulling exact prices from the future is critical for investment advisors. So analysts pick a number.
The problem with analyst price forecasts is they tend to be lagging indicators. When spot commodity prices fall, analysts revise their forecasts downward. Receive future articles by this author via email: Follow and be the first to know when they publish. Follow Oilprice (166 followers)