Sweep's Commodity Bust

[Scanner]

Commodities Boom Just Keeps Going and Going...: Financial News - Yahoo! Finance

[sweeps]

Touché.

Someday I'll be vindicated. For now, I'll just sulk in the corner...

[zooracer]

Of course, if we were good at predicting this stuff...we would be millionares by now.
I personally think that gold is going to hit 1000 before too long...and eventually continue on up to 1500.
I think the dollar has a ways to go before it comes back...maybe 4 to 6 months.

And commodities , for the short term (say 4 months), are going to be strong in my opinion.

[Broken Arrow]

Personally, I don't see anything out of the ordinary here....

There is still fear and blood on the streets (a la Wachovia), and consequently, commodity prices will continue to perform strongly.

Q1 is next Monday, and people are expecting many more write-downs from the financials. Commodities will likely get a bit more boost....

However, when market sentiments improve, that will then reduce interest in commodities. That's just the way it is....

[JBinKC]

It'll end when the institutions on wall street want it to end.

[jc3900]

Since when have we been able to predict tops in markets. Sorry, but when everyone is calling the top in commodities that only gives the indication of a bull market. Remember how many people tried to call the bottom in tech. It is just the opposite for the market on the way up. When everyone is saying that commodities will go up up and away, that is when it will bust. Until then though, expect to make a lot of money in commodities.

[sweeps]

JC, go ahead and keep dumping money into commodities, and then we'll chat later.

No one can predict the day the bust will begin (and we may not even know it at the time), but it's coming. The fundamentals are not there.

[Scanner]

Now, I disagree. . .I think short term, commodities may correct (my silver is down today on the news of a rising dollar and exit from oil). In fact, if there's an American recession (when), commodity prices will drop. It's long term that I think it's inevitable that commodities do well.

I subscribe to a simple economic theory:

It's about the oil, baby.

If you want to read one thing per day to gauge our economic health, don't look at the Dow, the S&P 500, the NASDAQ. . .just look at the price of oil.

That's all you need to know.

Every economic expansion in our country was dependent on one thing and one thing only - cheap oil. Not technology, not the internet invented by Al Gore, not Reaganomics.

Cheap oil.

To get copper, silver, grain, you need equipment to mine it or farm it. And that equipment operates on energy (not to mention fertilizer is petroleum-based). You need energy. . .and that means oirl. So, to produce these crops and other commodities, you are going to naturally need more energy, which means higher prices.

I don't see how we can escape other than alternative energy and we just haven't cared up til this year about it as a country. We have had an oil President and Vice-President and that's all we know as a country and really, as a world, with a few exceptions.

Couple this with the fact that America has a fiat currency. . .well. . .long term, I think commodities are not a bust.

[sweeps]

I appreciate your viewpoint, Scanner -- and you may turn out to be correct. But the current mania surrounding oil and gold and silver is mostly about 3 things: (1) financial panic, (2) the cyclical downturn of the dollar, and (3) massive speculation. All temporary things.

Your concern about the long-term... well, people adapt. Since we can't see the big solutions and changes coming in the future, our natural inclination is to extrapolate the current situation as far as we can see. If there is no innovation between now and 2050, sure, we have an unbearable crisis on our hands. But betting against innovation and unexpected change is a losing strategy.

[JBinKC]

First of all why is everyone so USA centric in their thinking. The commodity boom is happening because the supply for many commodities is tight right now.

Some commodities have not done well like zinc because the supplies of it are rising but copper prices have been strong because 40% of the world's supply is constrained. Same thing with Platinum or ferrochrome as 70% of the world's supply is constrained. You better know the market you are getting into.

But the underlying fundamentals support a strong demand since the USA is outsourcing and exporting its wealth away at a huge rate with our trade deficit thus lowering the value of the dollar and the countries who receive it can improve their standard of living to share in the demand for commodities for their own use.

[sweeps]

All bubbles are built on some fundamentals. Commodity prices should be rising but not by this rate. When people overreact on the up side, eventually they overreact on the down side.

On top of that, the world (not just the U.S.) cannot sustain these skyrocketing commodity prices -- something's gotta give. Sounds very familiar to housing in 2005, doesn't it?

[Scanner]

Commodity prices should be rising but not by this rate.

Why do you say that? I think many people have said that commodities have been kept (esp. oil) artificially low and this is merely a catch-up.

You think it's all speculation that's driving the prices? That's kind of what Hillary alluded the other night in her democratic debate.

[noppenbd]

The Wall Street Journal reported this week that Exxon Mobil's oil exploration program is consistent with future oil prices of $65 a barrel or less. Basically they are not spending a lot on searching for new oil. If they believed oil at $110+ was sustainable wouldn't they be looking like mad for as much as they can get?

[jc3900]

Well, I guess we could be in for a bubble but do you guys really think we are going to see anything close like the bust in the 80's. I can't imagine seeing gold take a 50% plunge at these levels?

[sweeps]

Originally Posted by noppenbd

The Wall Street Journal reported this week that Exxon Mobil's oil exploration program is consistent with future oil prices of $65 a barrel or less. Basically they are not spending a lot on searching for new oil. If they believed oil at $110+ was sustainable wouldn't they be looking like mad for as much as they can get?

Yeah, I've read several articles where the people who really know oil (not the hedge funds or the gold bugs) say the "real price" should be in the 70's or 80's.

But honestly I don't want to rain on anyone's parade. If you want to invest in commodities, please go ahead. If you keep winning big, my hat's off to you.

[noppenbd]

Originally Posted by jc3900

Well, I guess we could be in for a bubble but do you guys really think we are going to see anything close like the bust in the 80's. I can't imagine seeing gold take a 50% plunge at these levels?

Look, gold is up 40% in the past year, and oil is 60% higher. We may even see higher oil prices this summer if we have any weather-based interruptions. Any time you see run ups like that I would expect a correction, regardless of what investment you are talking about. Unless you are playing with fun money, I think allocating more than 5-10% of your portfolio to commodities is a bad idea. Trust me, the minute we get some positive news on the economy you will not want to be heavy into gold (like this morning).

[noppenbd]

Go to Live Charts, Historical Data & Charts - Gold, Silver, Platinum, Palladium, Rhodium, Lease and Forward Rates and look at the historical chart from 1975-2008 for gold. Still think there is room for gold to go up?

[Broken Arrow]

Oil is... complicated. We are touching on several of its points, but most likely not all of it....

For example, oil prices seem high, but that's because our weak dollar is adjusted into that price. So, there's an inflationary factor.

Oil is high because of growing consumer demand in Asia. So, there's a global demand factor.

Oil is also high because supply is more or less dictated by our suppliers in the Middle East.... Supply control is also a factor.

Oil is also highly speculated right now. Speculation is yet another factor.

Personally, I do like oil. I really wanted to get into ExxonMobile back during the start of the second Gulf War.

However, because getting into it requires such a premium NOW, I just don't see why I should. Even with great companies and a product that sells itself, you can still lose money if you buy in at a time that may be overvalued from all the speculation frenzy.

There are reasons why oil is legitimately high, and that will likely remain so for the foreseeable future. However, there are also reasons why oil shouldn't be THIS high, and investors should be careful of a rising bubble.

As for oil being an economic indicator.... Yeah, I would agree that it's an important one. However, I don't think it's as good as the S&P for example.... Oil is only one (key) component in the supply-side process, and many other factors are involved in determining productivity. Contrast this with the S&P, which only measures the end result....

It's also worth mentioning that the United States is still far from "fuel-efficient" as an overall country. UK, for example, has been paying $5/gallon for quite some time now, and though they're not any happier about it, they're much more fuel-efficient than we are. So, there's an adaptation factor as well. Chances are good that our country, in the near term, can adapt to the oil prices by becoming more fuel-efficient as well. Some have already converted from SUVs to sedans....

I guess one final comment is I don't think oil moves quite the same way as precious metals.... However, I'm rambling from hunger now, and starting to lose my train of thought. So, instead, I'll refer you to a basic chart to help illustrate my point:

[tripods68]

I see "bubble" brewing in this sector perhaps.

[feh]

I sold my gold in February, when it was at $950. It went up to $1000 after I sold, but has come back down to the low $900s the last few weeks.

From what I've read lately, if the Fed is done (or almost done) cutting rates, the dollar is near a bottom, and the economy will start to strengthen in the second half of the year, the gold run may be over.

I'm not saying the price is gonna crash, but I wouldn't expect large returns any more.