Commodities (may) Tumble as Deflation `Blob' Eats Credit

[phantom power]

Commodities may skid 43 percent over the next 16 months, returning to the four-year low of February 2009, as deflationary concerns commandeer financial markets and drain credit, said Walter J. Zimmerman Jr., the chief technical analyst at United-ICAP in Jersey City, New Jersey.

The attached chart shows that the Standard & Poor’s GSCI Index of 24 raw materials has become tied to swings in the S&P 500 index on a daily basis since September 2008. Zimmerman said the stock market has been dictating prices of crude oil, gasoline, copper and silver on an hour-by-hour basis for more than a year, a sign that commodities are trading on economic expectations rather than their own supply and demand. He said that has never happened before.

“The Blob, or the collective mood of the consumer, has eaten the independence of key commodities,” Zimmerman, who has studied price patterns since the early 1980s, said yesterday in a telephone interview from Tyler Hill, Pennsylvania. “This all speaks to the fear and pessimism, the contraction, the conservatism, the unwillingness to take a big position to the upside. This is the psychology of a deflating economy.”

The GSCI index, which gained 0.5 percent yesterday to close at 536.706, may fall to 306 by the end of 2011 should the gauge break below 365, Zimmerman predicted. The index reached 305.585 on Feb. 19, 2009, the lowest level since January 2005.

http://www.bloomberg.com/news/2010-08-10/commodities-to-tumble-as-consumer-blob-eats-credit-technical-analysis.html

[bemildred]

1. Well, it certainly is not the sort of market in which one can feel confident

about future price appreciation in commodities. The commodity bubbles of the last decade have not really been unwound yet IMHO.

[Warpy]

2. Commodities desperately need to slip

although another 43% slide is probably going to take the Dow with it, just like it did in 2008. Hedge funds and brokerages have been up to their old tricks, you see, creating the same sort of commodities bubbles they created in late 2007 and early 2008. Remember $4.00/gallon gas? Rice riots in Asia? Thank your happy hedge funds and brokerages. You can also thank them for that extra buck or so you've been paying for a gallon of gas this year, too, since they've diddled spot oil futures so nicely.

The suckers who got in too late will end up holding the bag, as usual, as the big money gets out ahead of the rush, causing the crash. It's how they're managing to loot investors these days, create a bubble, wait for the suckers to get in, and pop it.

Eventually I hope the suckers get sick of being suckers and there's a groundswell of support for the type of regulation that will keep these parasites in check. Until then, it's going to be a bumpy economy.

[Art_from_Ark]

3. It's too bad Zimmerman's research did not go back before the early 1980s

"Zimmerman said the stock market has been dictating prices of crude oil, gasoline, copper and silver on an hour-by-hour basis for more than a year, a sign that commodities are trading on economic expectations rather than their own supply and demand. He said that has never happened before.

That sort of thing happened all the time in the '70s, when concerns about inflation, among other things, helped to spur price spikes in various commodities.

[bemildred]

4. Economics seems to be an a-historical and unempirical discipline.

Evidence from the real world is not allowed to interfere with academic and political theorizing; and "good theories" are not allowed to languish just because they have no ability to predict the future even when the economy is "stable", let alone when it is "unstable", which is most of the time. I suppose the thing is that economics is a thoroughly political discipline, it is about who get's what and who does not, and that is what politics is all about.