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Posts Tagged ‘commodity prices’

Commodities Growling Like a Bear

Posted by Larry Doyle on June 1st, 2010 2:48 PM |

Does anybody have any doubt that the equity markets are heavily manipulated by the banks and Uncle Sam? I didn’t think so.

The same clearly holds true for our credit markets, primarily the Treasury market. That said, the commodities market, in my opinion, is much more closely aligned with the real economy. What have commodities done over the last few years? The DJ-UBS Commodity Index was up a mere 16% in 2009 and is down 10% so far in 2010. Over the last two years, the index is down approximately 50%, significantly more than most major equity averages.

What are commodities telling us currently? Let’s navigate. (more…)

Let’s Get Some Chinese: A Review of Economic Activity in China

Posted by Larry Doyle on May 13th, 2009 11:59 AM |

China’s stock market closed today at the highest level since August ’08. Is that an indication that China is ready to resume its economic expansion and can literally pull the global economy right along with it? Well, let’s check out a number of items on the menu: 

1. The Baltic Dry Index has rebounded over the last few weeks. The BDI is extremely volatile. It plummeted approximately 95% from its high in early 2008, rebounded strongly earlier this year only to suffer a setback in March as our equity market started to regain its legs. The recent rebound in the BDI is again credited to increased shipping activity of commodities into China. Prices of commodities (copper, oil, iron ore) have been very highly correlated with the BDI as a result.

So far, so good . . . let’s try some more items on the menu.

2. How about Chinese lending activity? Is the well directed Chinese stimulus precipitating an increase in activity by non-governmental borrowers? The FT reports, China Cuts Lending Amid Asset Bubble Fears.   

I will give those in charge of China’s fiscal stimulus and government programs credit. As this article highlights, these authorities have real concerns about inflation and irresponsible lending practices.

The FT reports:

Chinese bank lending slowed dramatically in April because of fears that loan growth in the first quarter had been excessive and could pave the way for loans of deteriorating quality, so possibly creating a new round of asset bubbles. 

That led to fears among regulators that money was being funnelled illegally into the stock market and handed out to state-sponsored stimulus projects of dubious commercial value that could become non-performing assets.

Some regulators also worried about the potential for rampant inflation. Those fears were somewhat eased by price measurements released on Monday showing China remained in deflationary territory in April for the third consecutive month. 

Wow! Can you imagine if a regulator in our country had the integrity to voice concerns about government funds being utilized illegally or fraudulently? 

This item did not taste so good in regard to leading the global economy to greener pastures, but I commend the Chinese for addressing potential pitfalls in their programs. 

3. Away from the government stimulus, the Chinese economy remains largely dependent on exports. Let’s take a taste! Again, our friends at the FT provide some spice, Slide In Chinese Exports Will Hit Growth Strategy:

The FT reports, 

Chinese exports fell steeply in April for a sixth month in succession, suggesting that the worst might not be over for the world’s third largest economy.

The total value of Chinese exports fell 22.6 per cent to $91.9bn (£60.2bn) last month compared with the same month a year earlier – a faster rate of decline than the 17.1 per cent year-on-year drop in March.

Why are Chinese exports falling? Well, please review our first post this morning which highlighted that domestic retail sales here fell by .4% after a decline of over 1% last month.  If American consumers aren’t buying, Chinese producers aren’t exporting. 

4. LD, it is only a matter of time, though, before the American consumer returns to his old ways of spending and the Chinese exporters will be happy, right? Let’s go for the fortune cookie and see what it says: U.S. Lawmakers In Threat To Raise Tariffs On China.

Congress is raising this threat given rising unemployment here at home and concerns that China manipulates its currency. Will this tariff fly? Perhaps. 

The FT reports:

a group of lawmakers from manufacturing-dominated states are determined to give it another try and some analysts think the US recession could help build support this time. The charge in the Senate will be led by Debbie Stabenow, a Democrat from Michigan, and Jim Bunning, a Republican from Kentucky. In the House, it will be pushed by Tim Ryan, a Democrat from Ohio, and Tim Murphy, a Republican from Pennsylvania.

Whether these tariffs are the right maneuver or not, increased protectionsist measures are not one way streets. If we are looking to grow our own economy without being dependent on the American consumer, we will need global trade lines to be open. 

So, what did you think of our sampler?

To me it was more sour than sweet. In my opinion, our future/fortune remains decidedly mixed at best. 


For more in depth BDI analysis, check out Baltic Dry Index and Commodity Graphs

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