Loading...
Symbols:
Authors:

A Closer Look at 4 Commodities

by: Macro Man April 01, 2008 | about stocks: DBC / DCR / GLD / GSG / OIL / USO    

Macro Man

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Whew! Now that Q1 is behind us, things are bound to get a bit easier right? Let's see. Japan's Tankan dipped to a 4 year low, marginally disappointing expectations. European banks (mostly UBS) have written down nearly $23 billion today, Tuesday, and UBS (UBS) chief Marcel Ospel has fallen on his sword. Meanwhile, commodities are cratering once again. So naturally equities are higher this morning!

The equity rally might have something to do with "kitchen sink" writeoffs at UBS, though one might argue that the writedowns late last year were also of the kitchen sink variety. Moreover, given the perception that hedge funds are short/real money underweight, it's perhaps not surprising the new quarter is seeing a smidge of buying.

One market that is not heavily populated by shorts is commodities. Since the middle of March, there has been carnage in the commodity complex, a trend that is continuing today. Consider the following:

1) Wheat. The surge in volatility starting in February suggested that speculative participation was becoming prohibitive...and that is now being shaken out. The USDA report suggesting a 6% increase in the next wheat planting doesn't suggest any near-term respite, either.

2) Soybeans. If fresh supply is a reason to sell wheat, then it's trebly so for beans, where the fresh planting will rise by 18%. Goldman Sachs recently put out a bullish beans call; suffice to say at this point the the recommendation looks ill-timed.

3) Oil. The oil price rallied last week in line with EUR/USD, but the tide appears to have turned. The recent uptrend line looks to have broken; a move below the recent low would target around $90, if not a little lower.

4) Gold. Gold bounced smartly off the recent $904 low, trading back above $950 last week. Whoops! That didn't last long, and we've now made a new low this morning. The obvious target is now $850, which not only was the all time high, but has also been resistance/support over the past six months. Incidentally, the price destruction in gold hardly bodes well for EUR/USD....

More fundamentally, if the commodity meltdown continues, then the inflation problem that Macro Man has worried about for the past couple of years may need to be shelved temporarily....

Related Articles

This article has 11 comments:

  •  
    Apr 01 03:04 PM
    The EU and the coming North America Union are products of the 1940s GATT formulations, and very few analysts are aware of it.

    My missive to Ron Paul’s staff, regarding my view that this financial crisis is not by happenstance nor mismanagement—but BY DESIGN!:

    The Honorable Ron Paul is ignorant of an ongoing conspiracy to topple, financially, the West, in order to equalize the world’s economies; for building one-world government under GLOBAL ECONOMIC SOCIALISM. // The conspiracy began in the 1940s with the GATT formulations. // Ask why Greenspan had violated his chairmanship duties by advising prospective home-buyers to take out an ARM. // Ask why Greenspan had sent out fed regulators to warn banks that they’d be charged with RACISM if they didn’t loosen home-loans for minority, HIGH RISK home-buyers. // Ask why Greenspan recently, TRAITOROUSLY, had advised OPEC oil producers to de-link from the U.S. dollar. // Greenspan - the FEDERAL RESERVE - has embarked on a purposeful set of monetary policies designed to destroy the West’s financial underpinnings. // Read about the WHO, the HOW, and the WHY of it in my below article (first one): Planned Destruction of America: planneddestructionofam.../ // Corporate America: What Went Wrong?: corporateamericawhatwe.../

    This helps to confirm efforts to PURPOSELY trash America’s financial underpinnings: www.321gold.com/editor...
    Reply
  •  
    Apr 01 06:03 PM
    Don't trust what commodities are doing right now...Contract margins have been raised...the small fry are being shaken out...this is an artificial ploy by the Gov. to reduce inflation for the CPI and PPI numbers so whatever the fed does next will be perceived as acceptable.
    Reply
  •  
    Apr 02 06:15 AM
    The commodities up-cycle has just begun.
    Reply
  •  
    Apr 02 08:01 AM
    hi deacon,
    wow, that's funny, indeed! You know, there is no need of a conspiracy by alien forces to destroy America. The ever-greedy Amrican(!) military-industrial complex (Eisenhower warned vehemently against that one shortly before his presidency ended, ya know) has been working overtime to generate profits by spreading war, crisis and fear and by dragging the usa into war after war after war allover the world. Now, this has long-term consequences: As military spending is largely unproductive (i.e. just consumption) requiring lots of resources the usa has gotten into a real mess of escalating debt, rampant financial speculation and shrinking manufacturing base. All this will result (and already has to quite an extent) in further destruction of the purchasing power of the dollar, mass-ruin, the extinction of the once-prosperous middle class and the ultimate downfall of the once largtes economy of the planet. There is no conspiracy from abroad required - the us investment banks, oil majors and arms producers helped by their servants in the govt and the fed are more than sufficient and well equipped to achieve this.
    Reply
  •  
    Apr 02 08:05 AM
    question: when is investing in commodities done in order to hedge against the shrinking purchaisng power of the dollar a hedge - and when does it turn into speculation? I mean, to draw this border gets complicated these days, right?
    and why is purchasing treasury bonds and notes investing - and not rather speculating? speculating that the govt will be able to pay it all back 10 or 30 years from now which is far from sure. just wonder
    short term, of course, anything can happen in the commodities markets, but longer term, there are trillions of paper dollars sitting idle abroad losing value by the day - so china and japan and others may use any drop to invest them in things they need anyway - such as food and oil
    Reply
  •  
    Apr 02 10:21 AM
    the commodity sell off is 100% market manipulations by our GREEDY BANKER who wants us to bow down and worship pieces of worthless paper. It is all rigged. Listen to Dr. Marc Faber.. He says it is all being manipulated... There is no free market..
    Reply
  •  
    Apr 02 02:27 PM
    For a complete rebuffal of Gene Epstein's commodity bubble theory, which shows up on the front page of Barrons as an April Fools Joke. read this article:

    seekingalpha.com/artic...

    Reply
  •  
    Apr 03 09:11 AM
    When I see < $2.50/gal gasoline at the pump, then I'll start worrying about deflation. 'Till then I'm sticking to my guns; $100 per barrel oil = $1000 per once gold.
    Reply
  •  
    Apr 03 09:25 AM
    Deacon, just a note.

    In his PBC interview, just a few months ago, Greenspan stated that making financial decisions he always put social consequences as his highest priority.
    Reply
  •  
    Apr 03 08:49 PM
    I can see fxtrader has been doing his homework.Good post.
    Reply
  •  
    Apr 04 11:52 PM

    A couple of weeks ago, Kevin Kerr (? or someone associated at Agora) sent out a warning/alert on the imminent crash – for the time being, that is. He referred to the Commitments of Traders. Sorry, I don’t have the URL handy, but I think it’s at the Chi Board of Trade, or Futures, site. He suggested watching that info, and that the commercial traders were shorting very heavily. Being heavily invested in commodities of various types (metals, agriculture, etc), I checked it out the next day. Once I found it, I saw what he meant. Didn’t really believe it, but I decided I should tighten up my stop-losses. That was to happen the next night – but that night my computer crashed, and I spent the whole night getting it up again. That left me too tired to tighten the stops, and also too tired to get up for the trading day. And when I got to the computer that evening, it was basically over.

    I commend you to the Commitments of Traders.

    But I also do agree (as does he) – it ain’t over, scarcity will rule. But that’s long-term, not necessarily short.

    BTW: I am impressed with the comments on this article. Polite, no name-calling or dissing, and responses to the actual points made (some of them political), rather than to whether they should have been made. (Yes, I know that’s a run-on sentence; I’m tired.) Not always the case on Alpha. However, I have to say that there’s much less nastiness here than on AOL, for example.
    Reply
More Comments on DBC »
More by Macro Man
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Commodities
Alternative Energy
Coal
Ethanol