Category Archives: Food

Some See China’s Buying Spree on Commodities as Short-Lived – NYTimes.com

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Some See China’s Buying Spree on Commodities as Short-Lived – NYTimes.com.

With the advent of Central Banks printing their way out of this mess the probabilities continue to point toward inflation.  While the rate of expansion of the money supply has lessened it is no less continuing to rise.  Should the Fed decide to sell some of its assets I can only imagine a depression ensuing.  As some have said they are threading the needle between inflation and depression, but at some point I think the hole will close and we will be stuck on the side of inflation.

The rebound in commodity prices is staggering.  Many factors influence commodities, among them currency valuations, supply and demand, forecasted demands, hedges against currency devaluations, and inflation.  China plays a major role in the demand factor.  In a recent NY Times article, referenced above, they state that while China is stockpiling commodities production lags.

At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak.

“There has been enormous stockpiling of all commodities” by China, and this cannot continue indefinitely, said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a big shipping line based here.

China is getting ahead of it future needs, which makes sense, but how long can it continue?  I have no doubt in my mind that we will see higher prices for everything, while wages stagnate and job losses continue.  The question however is if commodity prices will continue to rise without a correction?  If I had a crystal ball I would say yes primarily due to our fiat money system, record low levels of food supplies, and energy stocks being depleted while further exploration and extraction projects are being put on hold.  Until we see higher energy prices they won’t be put into full swing, which take years to develop. Nothing goes in a straight line however, so a mild correction would be encouraging for buying on the dip.

Back to the demand situation…

Richard S. Elman, the chief executive of the Noble Group, Asia’s largest diversified commodities trading company, bounced up from the conference table in his office here when asked about freight rates during an interview on Tuesday morning. He walked over to his desk, dominated by three computer screens that partly obscure a perfect view of Hong Kong’s harbor, and quickly punched up on one screen a list of daily charter rates for large bulk carrier freighters.

The list showed ship owners charging $58,000 a day now but just $24,000 a day for charters next year or in 2011 — an indication that there will be more ships than cargoes in the years ahead, particularly with shipyards still finishing vessels ordered during the recent boom.

Pointing to the rates for the next two years, Mr. Elman said, “That’s the real market” for ships.

As demand drops so do shipping rates.  There just isn’t as much stuff being moved around the globe.  Thanks to our inflated demand for goods we have excess capacity.  How many more ships can sit idle while China continues to stockpile?  If China slows it stockpiling, and demand for goods continues to drop and the recession continues and joblessness rises then what will be the impetus for prices to rise.  Again we have to go back to the fiat money system, and increasing debt to GDP all around the world.  How will our debt be paid off?  Inflation.
Even with a drop in demand for raw goods and materials if central banks continue on their present path we are headed for higher prices.  So, I’d like to see a correction in the price of goods due to a demand drop and then hold on for a wild ride as prices increase.
While I say I’d like to see this for profit potential, unfortunately there is a consequence on the human level.  If prices rise, while wages stagnate people will protest in anger.  It is a catch-22.

Why Gold?

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I agree that we are probably going to see a continued decline in commodity prices especially PMs.  However, given the increases in the monetary supply I forsee this trend reversing.  When the trend reverses, which isn’t going to happen immediately because we are headed towards a major recession, with unemployment rising, and more likely interest rates as well, inflation will be severe.

The Money Supply graphs are frightening.  Once that money goes into the system I wouldn’t be surprised if we start to see hyperinflation.   For all of our sakes I don’t want that to happen.

As for investing in PMs I think there are two types of people who purchase them.  The first is the speculator, and the other the long term purchaser regardless of price. (I’m leaving out purchasers for industry and jewelry).  As much as I don’t like to see the value in relation to fiat currency of my PMs decline my intent on owning them is for more of the oh shit situation.   Throughout time gold, and silver to a lesser degree have held up as a store of value.  They aren’t going to be worthless as can a paper currency backed by nothing. Politicians and those involved in the government don’t like PMs as they aren’t easily created.  Having a currency backed by a scarce resource means that they have to control spending as they can’t print money to pay for various expenditures.

So, why gold and silver?  What happens if the fiat currency fails?  All of a sudden you and I have a bunch of roman numerals in our bank accounts.  Sure we can go get paper currency, but it is better to use as heat.  If this happens chaos will ensue until another solution is created or we go back to a currency backed by PMs.  I doubt the latter case would occur as bureaucrats aren’t going to want that option. 

My other concern is war with Iran, which is looking more and more likely.  In this scenario gold and oil will skyrocket.  Oil will also be much harder to obtain and the government will probably institute a rationing scheme instead of letting the price rise.   I’d rather pay $50.00 a gallon for gas then not be able to get it or to have to wait in line for days.  I presume many of you don’t agree, but gas or no gas you pick!  Would I drive much NO… however, if I needed to go somewhere I could get the fuel I needed.   

Lastely, beyond Gold and Oil we all need food and water.  Don’t forget food.

 

-T