Citi: The Commodity Collapse Could Be "Subprime Part II"

The Business Insider ^ | 11/23/09 | Joe Weisenthal

[FromLori]

In the bank's latest edition of its Monday Mining Minutes, Citi lays out a scenario which it calls the "Nightmare on Commodity Street." (via FT Energy Source)

So here’s the nightmare scenario, which we hope will not happen:

Thousands of very smart speculators have accumulated the biggest ever speculative physical raw material positions ever witnessed in the belief that either the dollar will collapse or an ongoing global ‘Supercycle’ will shake off the effects of the credit crunch and resume business as usual. They are funded in this venture by some of the lowest interest rates on record. What are the threats to their thesis?. They are as follows :

1. Governments, having pumped huge amounts of money into the global system, find they are running our of fire-power even while economies are still at the incubation-stage of recovery (i.e. the kind of stage we saw displayed last week in the poor USA housing starts data). Some governments find that suddenly their bonds are considered to be ‘toxic’ and a far higher interest rate is demanded for ongoing participation.

2. The global economy not only experiences a slower upturn than the consensus view, but after the recent inventory-restocking phase is over, it relapses into a W-shaped recession. More jobs are lost and people who have been unemployed but still able to keep up their mortgage payments (because of near-zero interest rates) are suddenly defaulting. Banks finally have to write down the value of these assets and housing markets around the world are flooded with new inventory. New-build is out of the question. Orders for new fridges, washing machines, stoves, taps and other items that metals so depend on for demand, simply freeze.

[silverleaf]

This is Harry Dent’s prediction for next year, in the “Great Depression Ahead”

http://www.youtube.com/watch?v=nF18_-iZTe0

In 2010 (NLT 2011) we see the burst of two more bubbles- commercial real estate, and commodities.

[LomanBill]

>>More bogus warnings by the anti-goldbugs.

Bogus?   Like the perpetual motion "Housing Construction" ATM machine... that municipalities have stupidly made themselves dependent upon?

=============
3. Ponzi Investment. This is best exemplified by housing. A house, once built, is incapable of producing a return into GDP. Its value can only increase because someone else believes that it is of greater value than the person who originally constructed it. This is the definition of a ?Ponzi Scheme? and the claims of many Realtors in fact feed it ? the fear of scarcity as epitomized in the claim ?they aren?t making any more land.? While Ponzi Investments have utility value in many cases, their inherent value frequently decreases over time and requires additional capital inputs to maintain (as in the example of a home needing a new roof.) This type of investment, when financed through debt, is always a net drain on GDP.

=============
http://market-ticker.denninger.net/archives/1631-You-Stupid-Fool-Bernanke.html

Got McSprawl?

 

 

How 'bout McLiquor?

 

McCandy is Dandy but...

"Bush Says Wall Street 'Got Drunk,' Needs to Sober Up"

 

BOHICA!

[FromLori]

Another piece you might want to read

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/how-much-longer-can-gold-rise.aspx

Oh and

http://www.truthsavvy.com/content/free-money-federal-reserve-fuels-dangerous-new-wall-street-bubble

[demsux]

I think that I’ll take a pass on listening to Citi’s advice...bunch of Harvard MBA’s that got us into trouble in the first place.

[FromLori]

Good idea but the reason I read many of those things is to get the whole picture kind of like know your enemy.

A huge part of the problem is the majority of economists are disciples of Keynes.

http://www.marketoracle.co.uk/Article15187.html

[demsux]

I agree completely with both your points.

[redgolum]

The danger is as with any bubble.

The only question is the run on gold prices a “bubble” or the sign of the end of the dollar.