Category Archives: Commodities

Chinese Stock Market Rout Continues; Trading Halted in Over Half of Listed Stocks

The Chinese stock market meltdown is accelerating despite government intervention and is blowing back to commodities markets, including copper and oil, which are trading down based on concern that the stock market plunge is a harbinger of even more economic weakness. And the decline may represent the beginning of the end of the faith in China’s command and control economy.

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Oil Markets Could Be In For A Shock From China Soon

China’s oil consumption is a bigger part of global demand than most analysts acknowledge. A slowdown in buying after China stopped stockpiling diesel for the summer Olympics was a proximate cause of the 2008 oil bust. China is again in a stockpiling phase, which could precede another not-well-anticipated demand drop.

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Wolf Richter: Australia Runs out of Luck, Now Needs a Miracle

By Lindsay David, Australia, author of Print: The Central Bankers Bubble, founder of LF Economics. Originally published at Wolf Street. Australia, you have officially run out of luck. While leveraged property investors in Sydney and Melbourne are desperately hunting for a senseless “net-yield” that makes the yield on a German 2-year bund look rewarding, the […]

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Why Did Commodity Prices Move Together?

As strange as it may seem, most economists loudly disputed the notion that the rise in commodity prices, particularly in the first half of 2008, was in large measure due to financial speculation. More and more analytical work (such as comparisons of price action in commodities trades on futures exchanges with ones that have large markets but are not exchange-traded, like eggplant, a staple in India, and cooking oil) have dented the orthodox view.

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Michael Hudson: Europe Tilts East Towards China

The sudden rush of countries joining China’s infrastructure bank, including supposed US allies like the UK, Germany, and France, demonstrates the desire of not just emerging but also advanced economies to have access to international institutions that are not dominated by the US. Whether the infrastructure bank actually winds up being better, as opposed to simply different than existing institutions remains to be seen. But as Hudson describes, the World Bank sets a low bar.

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Gail Tverberg: The Oil Glut and Low Prices Reflect an Affordability Problem

Tverberg argues that low oil prices likely to be with us for a long time, due to the fact that demand will remain relatively weak. Given the reluctance of governments to engage in aggressive enough spending measures, the idea of that more economies will become mired in a Japan-like slump or weak demand is entirely plausible. And that’s before you get to the wild card of a Eurozone unraveling.

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The Fed’s and Republicans’ War Against Dodd Frank and How That Preserves the Greenspan Put and Too Big to Fail

A new story by Gretchen Morgenson of the New York Times highlights how the Federal Reserve and the Republicans* are on a full bore campaign to render Dodd Frank a dead letter, with the latest chapter an effort to pass HR 37, a bill that would chip away at key parts of Dodd Frank. But the bigger implications of this campaign is how these efforts serve to limit the Fed’s freedom in implementing monetary policy. In other words, Fed general counsel Scott Alvarez is undermining the authority of his boss, Janet Yellen.

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What are the Odds of a Commodities-Led Global Financial Crisis?

Yves here. While the odds of commodities-triggered 2008 style meltdown is still not the most likely outcome, recall that that pessimists like yours truly assessed the likelihood of Seriously Bad Things Happening as of early 2008 at 20-30%, which I then saw as dangerously high. In other words, tail risks are bigger than they appear.

Some of the things that favor worse outcomes than one might otherwise anticipate is investor irrationality, or what one might politely call herd behavior. For instance, a major news story today was how investors are dumping emerging markets assets willy nilly, when many are not exposed to much if any blowback from lower commodity prices and quite a few are seen as net beneficiaries. The offset is that central banks have been conditioned to break glass and overreact when banks start looking wobbly. But the Fed may be slow to get the memo, since it sees recent data (the last jobs reports and retail sales data) as strong, and is also predisposed to see its medicine as working even though it is really working only for those at the top of the food chain.

Note that this report is from Monday in Australia, and look how much oil prices have dropped since then. WTI is now at $54.28 per Bloomberg.

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