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It is no secret that
commodities in general have been on a bullish tear for some time. Precious
and Base Metals, Crude Oil, Foodstuffs - - all have approached, hit or
exceeded all time highs.
Deepcaster’s view is that
the long-term, multi-year, case for commodities continues to be very bullish.
For Crude Oil, for example,
consumption has considerably exceeded discoveries for some years now.
Even an economic recession
is unlikely to entirely derail many current key commodity consumption trends,
particularly given the demands from China,
India,
and the other Asian tigers which are likely to continue to increase, albeit
perhaps at a slower rate.
Indeed, the world’s
population of food and energy consumers continues to grow by some 80 million
persons per year.
However, in the
short-term (i.e. in the next few weeks or very few months), the price
prospects for many commodities are indeed bearish, with two, and possibly
three, exceptions.
The short-term case - -
likely over the next few weeks and perhaps the next few months into mid-year
2008 - - is that prospects are for a drop in many commodities prices. Why?
First, while the long-term
Fundamentals and Technicals for the U.S. Dollar are
simply horrible, (as Deepcaster has laid out in
considerable detail in earlier Letters and Alerts) in the short-term the
Dollar is technically and fundamentally due for a bounce. As we write, the
Dollar is just off record lows against the Euro, and that trend of a
seemingly ever-strengthening Euro has now reversed.
The largest chunk of the
USDX (that “market basket” of other key currencies by which the
U.S. Dollar’s value is determined) is the Euro. But the European
economies are a little better off than the United States’ economy. Europe’s credit crisis is worsening.
The Europeans have a
problem similar to that of the U.S. If Europe
lowers interest rates inflation will skyrocket. If they do not lower rates
they face a continuation of the credit freeze-up and a likely recession, and,
possibly, depression.
A Euro drop should thus be
accompanied by a U.S. Dollar bounce. That Dollar bounce would mean that the
purchasing power of the Dollar has increased. Therefore, that would be one
major force impelling a commodities drop in U.S. Dollar terms. Ceteris
Paribus, it will, in that eventuality, take fewer Dollars to buy the same
quantity of commodities.
Moreover, the CRB Index is
primed to enter its normal December - January selling cycle for the grains,
foodstuffs, energy, metals, and other commodities. Technically CRB momentum
has already turned down, as Crude has dropped below $90.
Significantly, it is clear
that the U.S.
economy is contracting. Real GDP is falling at an annualized negative two
percent*.
Finally, there is the
crucially important matter of The Interventionals. For
those unfamiliar with “The Interventionals”
there is very substantial evidence that the Fed-led Cartel of Central Bankers**
regularly intervenes in many markets including the major commodities,
precious metals, and equities markets, for the purpose of managing price. Indeed,
recent profitable Deepcaster recommendations
displayed at www.deepcaster.com have been facilitated by considering The Interventionals as well as The Fundamentals and Technicals.
Crude Oil
Specifically, regarding the
Crude Oil market, the Bank for International Settlements (the Central
Bankers’ Bank) reports over $7 trillion (June, 2007) in OTC
(Over-The-Counter - - i.e. NOT exchange traded) Commodities Derivatives
contracts. These contracts are available for controlling the price of
commodities (Bank for International Settlements:
Statistics Derivatives: Table 19).
Of course, the key
strategic commodity is Crude Oil. Since the largest player in any market
makes the market price, and since $7 trillion in commodity derivatives make
the Central Bankers Cartel “the largest player” when it chooses
to be, one can expect the Crude Oil price to go where The Largest Player
takes it.
If one charts the
dollar-adjusted value of Crude Oil, the rising trend of the past several
months is finally turning down, as reflected in the drop from $100 on the
NYMEX to just under $90 as we write.
Since the dollar-adjusted
value of Crude Oil has turned down we can expect Crude Oil to lead all the
commodities down with two and possibly three exceptions which we expect will
be only somewhat “touched” by the general commodities takedown.
By considering the Interventionals, as well as the Fundamentals, we are in a
good position to Forecast whether the $88 to $90 range is an interim bottom
or not.
Precious Metals
Many of the foregoing
reasons for weakness in Crude Oil prices apply to the Precious Metals as
well.
A bouncing U.S. Dollar, a U.S.
recession*, a worldwide economic slowdown, and, especially, Intervention (see
Deepcaster’s November, 2007 Letter at www.deepcaster.com) all should
“conspire” to determine Precious Metals prices in the near term.
We Forecast two Precious
Metals prices to be taken down substantially, and one other one to be
relatively unaffected (www.deepcaster.com).
There is a great demand for
that particular Precious Metal which we expect not to diminish. Today,
supplies are tight and getting tighter. Only a deep recession or depression
would likely diminish the bullish trend for that key Precious Metal.
Foodstuffs and Other
Commodities
In the short-term, some
foodstuffs will suffer price erosion consonant with general commodities
weakness. But others are likely to stay strong because of fundamental demand.
Reasons certain foodstuffs
will continue their bullish runs include:
Diminishing
supplies will likely work to keep the price and demand of certain commodities
up even in a serious recession or depression.
Crop shortages
in Asia and demand will likely keep certain
foodstuffs prices up.
Base Metals (e.g.
Copper)
Base Metals should
generally suffer short-term price takedowns with a few specific exceptions.
The leading “Base
Metal”, Copper, is likely to fall.
Copper is known as
“Dr. Copper” because of its ability to “diagnose”
oncoming economic activity, which today is falling.
Besides, Copper has
recently made a technically significant “triple top”.
Deepcaster would not be
“long” Copper now for love or money!
Short Run Bear,
Long Run Bull
With the real U.S. GDP
contracting at a negative 2% annual rate*, the overall demand for commodities
by the world’s largest economy, the U.S. economy, can be expected to
diminish, at least over the next few weeks or very few months.
In the long run of course;
that is, about one year hence and after, Deepcaster
expects the commodities bull to roar ahead as there continues to be
increasing demand for a diminishing supply across the board. And we can
expect Central Banks to continue to print more paper which will be chasing
that diminishing supply of those tangible assets - - commodities. That means
continuing commodities price inflation in the mid and long term.
Deepcaster LLC
Deepcaster.com
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
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