Commodities in 2009

tradetime

wombat42 wrote: »

Yes i am in for the long haul but it would p*ss me off if commodities werent healthier in 2009.

I'm not sure I would get too expectant of any great moves in 2009, there is likely considerable time to play out in the economic situation, from a trade perspective commodities might get a significant bounce soon, but I expect another leg down in the stock markets and it is quite likely after a bounce commodities retest their lows at the very least. Any significant move in commodities (other than short squeeze) is either dependant on a pickup in the economy or an increase in inflation.

cloud_dog

Have to admit to being a believer in the commodity super-cycle but cannot generally see commodities 'comming good' for a relatively long while, I think you've got to be looking a number of years down the road before things start ticking up again.

We are talking generalities here and PM's may buck a trend but having said that if the recent financial chaos hasn't caused Gold to skyrocket then I'm not sure what else will. Also, see the recent BBC article on cocoa hitting all time highs (in GBP).

Must admit my daughters CTF (in Central Fund of Canada) has done brilliantly, it is only about 8% of its all time high fund value. Most of this is because of the exchange rate variation beteen GBP and USD and also that CEF now trades at a 16% premium - all good for her.

Inflation is not as black and white as you may think - it depends on where the printed money ends up.

Also, there are reports of oil compnay's renting supertankers to store unsold oil.

So, to answer your question (generally)............ Ummm, No, not in 2009

purch

1) USD falling will prop up Commodity Prices
2) Supply Destruction is an ongoing situation that will prop up prices, but not cause a huge rise over a short timespan
3) The next spike in Inflation will be led by rises in Commodity prices, not the other way around. I do not agree with the Hyperinflation Hype :rolleyes: nor that the money creation being undertaken by the Central Banks/Governments will do anything other than barely plug the gap in the money destruction that has already happened, and will continue to occur at an even faster pace.
4) Another prop for Commodity prices

I don't disagree with the idea that not only, has the Commodity Supercycle not finished, but that the upside to prices seen so far has only been a taste of what will come.

I don't agree with all your reasoning, :eek: but then again it would be a shock if I did

Reaper

wombat42 wrote: »

1/ The dollar is widely expected to decline markedly over the long term

I'm curious about this one as I hadn't heard it before. My feeling was that the US is further along its cycle than other economies. It went into recession first and I was expecting it to recover first too. My thinking is the dollar is close to the lowest point.

Please can you explain the thinking behind why it may fall further - it may make a difference to my investment strategy next year.

As to commodities I think you would be optimistic to pile in on the expectation of growth next year, however I am thinking of investing in some way, but if I do I think I'd be looking to stay invested for a decade rather than hoping for a quick return.

purch

My thinking is the dollar is close to the lowest point

Think of it this way,

You have two items, a Hard Commodity and USD

Neither Yield anything currently

One has a finite supply, the other has a seemingly infinite supply.

What one would you currently rather hold ?

That is a very simplistic way of looking at it, but the bottom line is, that whilst the USD yields close to zero it is only it's "mythical" reserve currency status that is keeping it alive.

wombat42_2

Guys i would be surprised if there were any fireworks for commodities next year unless the dollar tanks early on. I would just be grateful if commodities finished 2009 up on 2008.

If commodites stayed low for the whole of 2009 (say oil at $40) that would be very bullish for the long term as supply destruction in the form of cancelled projects and investments would be huge. So when the economic recovery comes, say in 2010, commodities should severely spike apart from the other possible bullish reasons.Also investment money for anything will be scarce for several years thanks to the credit crunch.

I wouldnt expect the affects of supply destruction and inflation/hyperinflation to kick in until 2010.

Mind you, respected maverick Peter Schiff and also Citibank (it was a private internal memo not intended for public consumption) are talking about $2000 gold in 2009.

Other extra factors i havent mentioned is that the US and China are spending most of their stimulus packages on infrastructure which will be bullish for commodities from 2010 onwards.

Also it costs increasing amounts of money to extract commodities and we have the Peak Oil thing that should kick in around 2013.

Everyone is expecting oil to hit $200 at some point but no one agrees exactly when.

Also climate change may happen must faster than people expect which would boost agricultural commodities in particular.

tradetime

Also, there are reports of oil compnay's renting supertankers to store unsold oil.

So, to answer your question (generally)............ Ummm, No, not in 2009

Agree with this, that's what I am hearing, the steep contango currently in oil has made it very profitable to stockpile oil, buying front month contracts and selling later contracts against it, this will keep a ceiling on the oil price for some time to come, I do think there are likely to be tradable spikes in price from what appears a very oversold condition, which I will attempt to play. Japans oil imports for last month fell 17% Japan is the worlds third largest importer. South Korea's demand has also fallen 12% in November yoy, until there is evidence of real demand, I don't see any substantial upside.

newsaver2008

I am in the same position as Reaper; what happens to the dollar will affect my investment strategy seeing as I intend to invest in 5 year Eurobonds which I can only buy in euros or dollars. Clearly it makes no sense to buy euros at the moment. As everyone is asking, as the Fed have cut the interest rates to nil and their economy is supposed to be in worse shape, how come the pound is dropping EVERY day??

tradetime

wombat42 wrote: »

The dollar is widely expected to decline markedly over the long term

Reaper wrote: »

I'm curious about this one as I hadn't heard it before. My feeling was that the US is further along its cycle than other economies. It went into recession first and I was expecting it to recover first too. My thinking is the dollar is close to the lowest point.

Please can you explain the thinking behind why it may fall further - it may make a difference to my investment strategy next year.

I am not so sure about the prospects of the dollar, there are a few very outspoken dollar bears, but apart from them I am not so sure consensus is for a substantially weaker dollar. Against the outspoken few, I believe they fail to take into account the fact that many countries are likely to favour a weaker currency going forwards, in response to weakness form the currency of the worlds biggest consumer market.
In favour of a weaker dollar, Uncle Ben is well known for his preference to a weaker dollar in this climate.
I can see no upside catalyst for the dollar at this time, therefore the preference of Uncle Ben coupled with the massive debt burden the US enjoys should keep the dollar weak I also wonder whether the expanding bond bubble may play a part.

tradetime

newsaver2008 wrote: »

I am in the same position as Reaper; what happens to the dollar will affect my investment strategy seeing as I intend to invest in 5 year Eurobonds which I can only buy in euros or dollars. Clearly it makes no sense to buy euros at the moment. As everyone is asking, as the Fed have cut the interest rates to nil and their economy is supposed to be in worse shape, how come the pound is dropping EVERY day??

The pound is weak on the perception currently that the UK recession may be deeper than the Eurozone, while this is possible I'd say it is just as possible the reverse is true, secondly the BOE is widely expected to continue it's rate cut cycle. The ECB however has signalled that they may pause here.