And you probably thought the oil bubble in 2008 was a big deal? Well, the CRB Spot Index of 23 markets (which EXCLUDES oil) now dwarfs the 2008 move. This bubble is not only larger, but it is substantially broader in terms of the markets included. Few markets have been excluded from this price surge:
This is such an extreme disequilibrium that I think the Fed has to now very seriously consider that they have contributed to this rise in commodity prices. Several independent sources have come out to counter the propaganda out of the various Fed banks claiming no involvement in the commodity price increases. It would be nice if the Federal Reserve stopped playing doctor on the US economy and actually tried to objectively quantify the impact their actions have had. To anyone with a working set of eyes it is fairly clear that the Bernanke Put is working its magic in most destructive ways.
Cullen, there is a paragraph in Justin Fox’s book “The Myth of Rational Markets” where he reports how futures speculators have been blamed for commodities bubbles since the the beginning of time.
Guess what our President and Attorney General have been doing lately?
If the equity markets go down … blame the “short” speculators. If commodities markets go up … blame the “long” speculators.
Just blame speculators any time the markets do not move in the direction the Government wants them to.
I am especially dismayed by the Fed academics who are willing to put their PhDs behind questionable research absolving the Fed.
I am not so concerned with the level of speculation. I am more concerned with the extent that the Fed exacerbates it. It’s only natural that speculators would respond to the Fed with these sorts of actions. So, we shouldn’t blame the traders. We should blame the source of the problem – the Fed.
Exactly. You take away the liquidity and the amount of money that can be used for speculation peaks. There’s a reason why hedge fund assets have topped ’07 highs and it’s not because high net worth investors or pensions have more money. It’s leverage created in the shadow banking system through the Fed’s QE policy as investors swap treasuries for cash that is then either invested or lent out to hedge funds. This whole thing is going to unravel putting in a long term secular top in the CRB if you ask me.
another great excuse to regulate and tax.
It might be a little self-referential, but what would this chart look like inflation-adjusted?
When do you think the mainstream Economists (including Ben and Dudley from the FED) will wake up and see what is really going on? Or is it more that if they come out and admit what people like you know; it will discredit all of their economic work and theory they have spent most of their adult lives working to justify?
Right. They can’t reverse course now. It would be like the Pope having a revelation about Buddhism. He’ll reject that revelation to no end and if he can’t fully reject it he’ll take it to his grave. Anything else would be heresy.
I remember Bill Maher interviewing an old Vatican theologian about some of beliefs he considered absurd. The theologian smiled and said that no one around there believed that stuff, but that it had inertia because of traditional beliefs held by the masses. Institutions are inertial frames of reference, which is what makes them institutions. Institutions proceed on the path until a sufficient force deflects them from it. Change comes either very slowly from within or swiftly from without.
But… I thought… Aren’t economists supposed to treat their ‘science’ with neutral rationality and clarity, not the blind devotion of faith? If they don’t base their decisions on empirical data, but just what they ‘want’ to believe… they may as well have a shaman at the table to help them with their huna.
When did it become ok for economists to be overtaken with religious fervor, disguised as rational thought?
/confused.
Oh, I remember now… never mind.
Will the Fed never learn? The question is which bubble is going to be the last straw. As more and more leverage is abused and more and more debt is accumulated, each cycle sees the system becoming more and more fragile.
Will they learn? Congress expects so much from them that it seems as though they will continue down this misguided path trying to fix problems they aren’t equipped to deal with. I think it will likely take an act of Congress (probably after another big financial meltdown) to alter the Fed’s current course.
Any real bubble, once it has properly popped, cannot be reinflated. Tulip bulbs became tulip bulbs after all, Tech stocks did not reinflate, housing does not reinflate in spite of QE1,2 and so on…
Why do you guys think the “commodity bubble” not only reinflates big time but also reaches new highs in a very broad manner?
I do agree that there is some speculative froth in commodities, but I am quite sure that this commodity supercycle is going to stay with us for quite some time. Or at least until diminishing energy supplies finally choke it off…
I am wondering, whether or not global trading has played a large role in the growth and price of commodities in general?
Jeremy Grantham from GMO states that “Days of Abundant Resources and Falling Prices Are Over Forever” that there is in fact a Paradigm Shift. https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IICi3XDk3kgSh6vLtzbPwJWv9j9b13l0dYjF9rvqA%2bOemQJnKCUtBlLDQGoZefVzk4SHgb7XFBPhF9TB5NDqRGhNovIh7Uv8y28%3d
Beat me too it.
*to
Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed "“ that there is in fact a Paradigm Shift "“ perhaps the most important economic event since the Industrial Revolution.
Why is margin squeeze still subdued?
Was QE responsible for the move going into 2007?
This has very little to do with QE, imho.
Technically, greater efficiencies should lead to lower prices, but due to Jevons paradox, the more efficient you make the production of that thing, the more it typically gets used. The cheaper you make something that is inherently wanted, the more people who want it are able to have it. Demand ultimately begetting more demand.
Assuming that the chart prices are not inflation adjusted would mean real prices effectively fell from the beginning of the chart to ’72, coincidentally rose around the time of the 1973 oil crisis, then fell in real terms (stayed within a range in unadjusted terms) from ’75 to ’07 or so, then started rising again, again coincidentally when oil production (but not global use) roughly maybe peaked.
An inflation adjusted chart of oil, for comparison: http://en.wikipedia.org/wiki/File:Oil_Prices_1861_2007.svg
An inflation adjusted chart of the CRB would be handy, if anyone has a source.
Best I could find: http://www.stockhouse.com/Columnists/2011/Jan/5/images/ss010511_6 from this article: http://www.stockhouse.com/columnists/2011/jan/5/why-we-don-t-think-bernanke-is-lying-about-u-s–mo
If accurate, does seem to put the “horrible” 2008 spike of commodity prices into context. (Or silver’s recent rise, from the article, for that matter.)
Ah, here’s another chart, from a more familiar source:
http://pragcap.com/commodities-the-year-bear-market
Using the Real Commodity Prices chart, man had better hope the fall in real prices from roughly 1950 onwards was due to permanent human ingenuity and not abundant cheap energy, fertilizers, and petrochemicals. If commodity prices normalize back to even 1950 levels, let alone the wild variability of the 1800s, given the chaos current changing prices are creating in places like MENA, life is going to get a whole lot more interesting over the next couple years.
The problem with priced or planned for perfection is perfection seldom lasts. It’s not that much of human ingenuity won’t last and be of ‘permanent’ benefit, it’s that it’s not the whole story. It’s only part of the story. Cheap resources were also part of the story. There’s human ingenuity with the wind at your back, and with the wind in your face.
THIS HAS NOTHING TO DO WITH THE FED!!!!
Do the bubble callers have any other method of analysis???
This is a paradigm shift. Price movements are not always bubbles, nor should dips always be bought…
Don’t scream it. Show us some proof.
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And you probably thought the oil bubble in 2008 was a big deal? Well, the CRB Spot Index of 23 markets (which EXCLUDES oil) now dwarfs the 2008 move. This bubble is not only larger, but it is substantially broader in terms of the markets included. Few markets have been excluded from this price surge:
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