Posted on 03/29/2008 4:17:47 PM PDT by shrinkermd
CHINA, AS EVERYONE KNOWS, IS A BIG FORCE IN THE extraordinary boom in commodities. Its voracious appetite for everything from corn and wheat to copper and oil has helped push up U.S. commodities prices by some 50% over the past 12 months.
But China is by no means the whole story. Speculators -- including small investors -- are also playing a huge role. Thanks to the proliferation of mutual funds and exchange-traded funds tied to commodities indexes, speculative buying has gone way beyond anything the domestic commodities markets have ever seen.
By one estimate, index funds right now account for 40% of all bullish bets on commodities. The speculative juices are even more plentiful -- nearly 60% of bullish positions -- if you count the bets placed by traditional commodity "pools."
Index funds with buy-only strategies have had outsized influences on the market.
Here's the problem: The speculators' bullishness may be way overdone, in the process lifting prices far above fair value. If the speculators were to follow the commercial players -- the farmers, the food processors, the energy producers and others who trade daily in the physical commodities -- they'd be heading for the exits. For right now, the commercial players are betting on price declines more heavily than ever before, says independent analyst Steve Briese.
For example, in the 17 commodities that make up the Continuous Commodity Index, net short positions by the commercials have been running more than 30% higher than their previous net-short record, in March 2004.
Briese, was one of the first to recognize that information on the bets made by the commercials could provide rare insights into how the "smart money" views the price outlook. These days, the data suggest, the smart money clearly believes that the market's exuberance has turned irrational.
(Excerpt) Read more at online.barrons.com ...
This article, if prescient, bodes poorly for many heavily invested in commodities.
but not so poorly for the rest of us.
15,000 Dow.....all in!!!
“This article, if prescient, bodes poorly for many heavily invested in commodities.”
Or it’s just an article from “Barron’s,” LOL! Gold & silver are falling this week, but they’ll rebound. The dollar is still down, and oil prices are still way up. Those two things tend to lead gold & silver, with some “adjustments” along the way, which is normal.
It’ll take me all of one phone call to cash out and move to Easy Street.
Look for gold to go back up and hit $1200.00. Sell your gold, then buy more silver with some of your profits.
I’ve been in commodities since I was a teen. And as one who has lost her allowance money a time or two on the Learning Curve, I can honestly tell you that if one doesn’t have the b@lls for it, or the start-up cash that you can afford to lose, don’t play. It’s really that simple.
If gold scares you, look into coffee, cocoa or sugar. Avoid orange juice. It’s tanked, and the acid isn’t good for your stomach, LOL! ;)
An excerpt is:
In counterintuitive behavior, the markets have punished the large integrated oil companies across the board as oil prices surged to a record high of $110.33 a barrel earlier this month. Part of this was in anticipation of prices falling from their lofty levels and crimping profits. Growing oil and gas reserves have been an ongoing concern.
Shares of Exxon Mobil, the largest oil company world-wide, have fallen 9% this year, and those of Chevron and ConocoPhillips have slipped 10% and 15%, respectively. The American depositary receipts of BP and Royal Dutch Shell in the U.K. have tumbled 10% and 22% year-to-date, respectively, while those of France's Total SA have shed 13%.
A sharp pullback in oil prices will spark "a flight to quality" in the energy sector, says Fadel Gheit, energy analyst at Oppenheimer & Co. "If we see a precipitous drop in oil prices, which I hope for and expect because this toga party has lasted too long, then I think we are going to see a shift in investors," he says.
That makes these integrated oil stocks, trading around their lowest valuations in five years with strong dividend yields, all the more attractive.
"Big oil companies tend to be defensive investments in recessions and periods of falling energy prices because "they are very unlevered, have huge cash on the balance sheet and significant [stock] buybacks that will not be cut," says Paul Sankey, Deutsche Bank Securities' senior energy analyst.
Ever since that movie with Eddie Murphy (”Trading Places”??) I have avoided the Orange Juice market.
BUT...I’ve always liked the hooker’s (Jamie Lee Curtis) way of thinking in that movie:
“I have everything in laddered CDs. Five more years on my back and I’m out of this life!” ;)
Nothing “tanks” when demand outpaces supply.
Emerging countries are demanding commodities in
astronomical quantities, and I don’t see it letting
up any time soon. Agriculture, metals, and oil are
all good for the long haul.
LOL! Enrich anti-American countries with so much manufacturing and technical business, and they’ll suck more commodities out of the world! Our leaders handed our nation’s future security to them, and they won’t need us much longer.
And Sir (a Colonel I had this discussion with), the Chinese aren’t such “not very smart” “monkeys” after all. It appears that they’re even capable of R&D in fields like nano-tech.
If you are into this, can you tell me what the term “net shorts” refers to, other than fishnet stuff? For every short there has to be a long, otherwise no contract can exist.
He had a fortune working ~ going to make a million bucks, and he was so excited he could hardly sleep.
He stayed awake nights listening to late and early farm market reports from Kansas, and followed all the weather predictions closely.
Guy was sweating bullets.
Then, one night, it rained ~ and he lost it all.
He didn't look back.
Beats me. We buy actual coinage; not certificates. Been sitting on it for 8 years now, and we’re finally off to the races.
Commodities are no place for the impatient to invest. You’re not going to get rich quick. Slow is better and the afterglow lasts longer, LOL! :)
“He paid $5,000 for his first lesson.”
Luckily, my first “lesson” only cost me about $20. But as a 17 year old, $20 was about all I was worth, way back when. ;)
Eh. Not all of us can be ‘investment geniuses’ like Mrs. Bill Clinton, LOL!
Thanks, Cowboy! I’m just here for the eventual payout. Been playing ‘Texas Hold ‘Em’ with this gold & silver for eight long years now.
It’s my turn! :)
Fertilizer companies are good. I’m long POT, MOS, and COIN.
Some of this is speculation, but a lot has to do with “supply and demand”. There seem to be shortages
of everything: even hops for making beer is in short
supply.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.