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Title: The Biggest Bubble of All Time: Commodities Market Speculation
Source:
EconoMonitor
URL Source: http://www.economonitor.com/lrwray/ ... ommodities-market-speculation/
Published: Sep 22, 2011
Author: L. Randall Wray
Post Date: 2011-09-22 11:14:10 by lucysmom
Keywords: None
Views: 10694
Comments: 22
Sorry, this is a day late (but hopefully not a dollar short). Back in fall of 2008 I wrote a piece examining what was then the biggest bubble in human history: www.levyinstitute.org/pubs/ppb_96.pdf. Say what? You thought that was tulip bulb mania? Or, maybe the NASDAQ hi-tech hysteria? No, folks, those were child’s play. From 2004 to 2008 we experienced the biggest commodities bubble the world had ever seen. If you looked to the top 25 traded commodities, you found prices had doubled over the period. For the top 8, the price inflation was much more spectacular. As I wrote: “According to an analysis by market strategist Frank Veneroso, over the course of the 20th century, there were only 13 instances in which the price of a single commodity rose by 500 percent or more. For example, the price of sugar rose 641 percent in 1920, and in the same year, the price of cotton rose 538 percent. In 1947, there was a commodities boom across three commodities: pork bellies (1,053 percent), soybean oil (797 percent), and soybeans (558 percent). During theHunt brothers episode, in 1980, silver prices were driven up by 3,813 percent. Now, if we look at the current commodities boom, there are already eight commodities whose price rise had reached 500 percent or more by the end of June: heating oil (1,313 percent), nickel (1,273 percent), crude oil (1,205 percent), lead (870 percent), copper (606 percent), zinc (616 percent), tin (510 percent), and wheat (500 percent). Many other agricultural, energy, and metals commodities have also had large price hikes, albeit below that threshold (for the 25 commodities typically included in the indexes, the average price rise since 2003 has been 203 percent). There is no evidence of any other commodities price boom to match the current one in terms of scope.” Now here’s the amazing thing about that bubble. The staff of Senator Joe Lieberman and Representative Bart Stupak wanted to know whether the bubble was just due to “supply and demand”. Relying on the expertise of Frank Veneroso and Mike Masters (two experts on the commodities market), I was able to conclude beyond any doubt that it was a speculative bubble driven by a “buy and hold” strategy adopted by managers of pension funds. Hearings were held in Congress, with guys like Mike Masters testifying as well as representatives from the airlines and other industries. The pension funds panicked, realizing that their members would hold them responsible for exploding prices of gasoline at the pump. Pension funds withdrew one-third of their funds and oil prices fell from about $150 per barrel to $50. If you want to read the detailed analysis, go to my paper cited above—it has to do with commodities indexes, strategies pushed by your favorite blood sucking vampire squid (Goldman Sachs), and futures contracts. It gets wonky. To make a long story short, the bubble ended in fall of 2008. But then the crisis wiped out real estate markets and the economy. Managed money needed another bubble. They whipped up irrational fears of hyperinflation that supposedly would be caused by Helicopter Ben’s QE1, QE2, and the newly announced QE3. Better run to good “inflation hedges” like gold and other commodities. That did the trick. The commodities speculative bubble resumed. And boy, oh boy, what a boom. snip ...As prices rise, consumption of the commodities falls (as we are already observing) both through substitution and through conservation. At the same time, additional supplies come on line. Real world suppliers feel the imperative to slash prices to have some actual real world sales. They cannot forever live in never-never land with rising prices and collapsing sales. There are many shoes that will drop, bringing back the Global Financial Crisis with a vengeance. Commodities crash, default by a Euro periphery nation, failure of a Euro bank, or the closure of Bank of America or Citi. All of these are likely events, less than one standard deviation from the mean; probably all of them will happen within the next year. No matter what the triggering event is, that commodities nuclear winter will happen.
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#1. To: A K A Stone, Fred Mertz, Godwinson, go65, war, no gnu taxes, Skip Intro, ferret mike, jwpegler, mininggold, brian s, mcgowanjm (#0)
ping
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
Dagnabit! Interesting read, one that even I can understand.
Shall I PING Boofer for you?
America...My Kind Of Place... "I truly am not that concerned about [bin Laden]..." "THE MILITIA IS COMING!!! THE MILITIA IS COMING!!!" I lurk to see if someone other than Myst or Pookie posts anything...
Too bad it's WRONG. The biggest bubble in human history (and the final one we'll see for probably several decades) is DEBT, as a direct result of inflation via fiat-money printing world-wide, coordinated by the Bank of International Settlements... It's what has caused all the other bubbles- the dot-com boom/bust, the real- estate boom/bust, and the currently-going-bust stage of government "investment," which is really spending like a bunch of drunken sailors in P.I. As usual, loonymom focuses in on exactly the wrong thing... and biffs it. Typical.
To :Skippy, toe-jam, old man Fred Alzheimers Mertz, _jim, loonymom/ming, e-type-jackoff, goober56, Wrek, calcon, dummy DwarF, continental op, Biff, gobsheit and meguro I have zero debt. BZZZT!
There is no TARP option this time around. The TBTF argument has been decided. Failure will be permitted this time around. Should things role in this direction the Fed could stand up and purchase a big chunk of BAC assets. But that would be the last decision that Bernanke will make. There is absolutely no stomach left in America for another big bank bailout. There is no “Bernanke Put” in BAC stock." Farmers will be crushed. As will Land prices. $100 the acre for Prime Farmland.
And we have a Winner! ;} For the Leveraged Crowd...Mr Margin Calling on Line 1, sir...;}
Bank of America Corporation Com (NYSE: BAC ) Real Time 6.12 Down 0.26 (4.00%) 11:51 12 cent s away from a $5 print. Funds have to sell...
Buffett is safe though, right? Warren, that is.
Watch for news on a French Bank tonite.
Buffett stars in the remake of The Swedish Match King
The biggest bubble in human history (and the final one we'll see for probably several decades) is DEBT, as a direct result of inflation via fiat-money printing world-wide, coordinated by the Bank of International Settlements... It's what has caused all the other bubbles- the dot-com boom/bust, the real- estate boom/bust, and the currently-going-bust stage of government "investment," which is really spending like a bunch of drunken sailors in P.I. As usual, loonymom focuses in on exactly the wrong thing... and biffs it. Typical. And too bad you still let your labile emotional state get in the way of any legitimate arguments you might still have.
I had to look that one up. Quite a movie plot...
It makes sense to me.
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
Thank you. He didn't say I shouldn't ping him once removed.
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
Nor do I.
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
Pimco is cheerleading... EL-ERIAN WARNS: 'These Are All The Signs Of An Institutional Run On French Banks' El-Erian: 'French Banks' Troubles are the Flame Near the Gas Can'
GOOD for you. I'm not referring to personal debt, I'm referring specifically to government debt- which in turn is expected to be taken out of OUR hides, right or wrong...
To :Skippy, toe-jam, old man Fred Alzheimers Mertz, _jim, loonymom/ming, e-type-jackoff, goober56, Wrek, calcon, dummy DwarF, continental op, Biff, gobsheit and meguro If you can string some words together in a coherent response, I'll consider what you say. But so far, you've been quite the disappointment.
To :Skippy, toe-jam, old man Fred Alzheimers Mertz, _jim, loonymom/ming, e-type-jackoff, goober56, Wrek, calcon, dummy DwarF, continental op, Biff, gobsheit and meguro Pin a rose on your nose.
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
Something gave. We don't know what. Reuters-Talk that Europe needs to shore up its banks -- if necessary with capital from taxpayers' pockets -- is gathering steam as talk of a possible Greek default gains pace. That in turn is increasing speculation that banks will have to write down debt from governments right across the region.
And if you're not laughing like you've got a 'happy cocktail' IV drip, then you don't show up on state Tv...;}
#2. To: lucysmom (#0)
There are many shoes that will drop, bringing back the Global Financial Crisis with a vengeance.
#3. To: lucysmom (#1)
--GW Bush
--Sarah Palin's version of "The Midnight Ride of Paul revere"
#4. To: Fred Mertz (#2)
Dagnabit! Interesting read, one that even I can understand.
From: Capitalist Eric Message:
You're SOCIALIST morons. ESAD.
#5. To: Capitalist Eric (#4)
#6. To: lucysmom (#0)
#7. To: Fred Mertz (#5)
I have zero debt. BZZZT!
#8. To: Fred Mertz (#5)
#9. To: mcgowanjm (#8)
#10. To: All (#8)
#11. To: Fred Mertz (#9)
Buffett is safe though, right? Warren, that is.
#12. To: Capitalist Eric (#4)
Too bad it's WRONG.
#13. To: mcgowanjm (#11)
When the stock market crashes, Kroll can no longer obtain a bank loan. In desperation, he buys $50 million in fake Italian bonds from forger Scarlatti (Harold Huber), whom he then dumps in the middle of a lake to drown. With the bonds as collateral, he obtains a $40 million loan from an American bank. Then he thinks of retiring. He asks Marta to marry him, only to discover that, in his frequent absences, she has fallen in love with Trino, the gypsy violinist. Much worse, his forgeries are detected, and his American loan is canceled. Kroll shoots himself on the balcony and his body tumbles into the gutter, where he started.
#14. To: Fred Mertz (#2)
#15. To: war (#3)
Shall I PING Boofer for you?
#16. To: Fred Mertz (#5)
I have zero debt. BZZZT!
#17. To: mcgowanjm (#10)
Watch for news on a French Bank tonite.
#18. To: Fred Mertz (#5)
I have zero debt. BZZZT!
From: Capitalist Eric Message:
You're SOCIALIST morons. ESAD.
#19. To: mininggold (#12)
From: Capitalist Eric Message:
You're SOCIALIST morons. ESAD.
#20. To: Capitalist Eric (#19)
But so far, you've been quite the disappointment.
#21. To: socalv8 (#17)
#22. To: All (#21)
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