Tuesday, January 13, 2015

Oil crash a flash in the pan? Dr copper says not.

Copper Futures - Mar 15 (HGH5)

For those who say that oil prices are down due to manipulation and not supply and demand, pray tell, who is "manipulating" copper down at the exact same time, for what reasons? Is somebody going to suggest that this is an attack on Mexico? Of course not. A collapsing commodities complex plus collapsing shipping costs and falls in all fuel types cannot be precipitated by any market player. This deflation is structural. Rates are destined to go negative.

Posted by libertas @ 02:48 PM (2463 views)
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10 thoughts on “Oil crash a flash in the pan? Dr copper says not.

  • We shall see. What we don’t need is someone posting numerous articles that all say the same thing.

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  • Surely what we are seeing is a steady deflation in the assumed value of all asset classes, previously inflated by cheap money, and now falling to a market valuation. Property is ripe for such a correction.

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  • I would expect the price of all commodities to collapse if the underlying fuel that powers mines (oil) has also collapsed.
    Gold and Silver included, as it now costs fat less to extract it.

    Word on the street says that low-energy nuclear fusion is to blame for the energy deflation. Lots of companies including reputable firms as Lokhead Martin are planning to bring commercial devices to market in the near future

    http://www.huffingtonpost.com/david-h-bailey/low-energy-nuclear-reacti_b_6189772.html

    You can bet that if one of these reactors was viable the 1% would quickly pull their money from the energy markets and leave the 99% to take the losses.

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  • @1

    …or the return of people discussing PMs ad infinitum on a housing blog, for that matter.

    @2

    Makes sense.

    @3.1 “it now costs far less to extract it”

    Also makes sense.

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  • @3, Fusion is just one part of how technology is increasing the efficiency of things, and reducing input costs of all types.

    That is why the government’s response to deflation will be misplaced. They will treat it as a monetary phenomena, when in-fact a laissez faire approach is required because this is all about structural technological changes. Reduced liquidity will actually reduce deflation by reducing investment in technology. Ironically, by responding to technological breakthroughs with lower interest rates and more liquidity, they provide yet more capital for yet more technological advance, resulting in yet more deflation. Their attempts at halting this secular cycle in investment will infact accelerate it.

    But also, that liquidity does find its way into housing, so I do see it being supported by long term efforts by government to create inflation.

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  • Why see ‘manipulation’ and ‘supply and demand’ as mutually exclusive? Surely you can manipulate oil supply. What is OPEC about?

    Sharply falling oil prices are usually associated with a rising dollar, falling emerging market currencies and falling commodity prices. No need for a ‘manipulation’ explanation of a falling copper price.

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  • stillthinking says:

    You could say that the only action the central bank can take is to redistribute real wealth through inflation. However, that does not mean that people, fearful of lost savings, will start to consume instead. Most likely is that they will run for cover in real assets. Which is what seems to have happened.

    But there is a reason why they are saving now, because they anticipate needing those savings later. When that later comes, they may find that they have all run and bubbled the same target asset, which is housing in the UK.

    If, Libertas, as you seem to suggest forgive me I am wrong, that this is the moment that we face deflation, that we face negative rates, then that is a bit similar to saying that this is either the savings peak, or at least the beginning of the top. I don’t see a great deal of savers in the UK, and Japan just went negative, Chinese can’t be far behind with their one child policy and of course the boomers in the States are all heading into retirement en masse this year. Sixty five years ago was 1950. You have to be a worker to save and the workers are leaving the pool.

    The deflation that should have occurred was back in 2008 and as we know the government printed their way through.

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  • My point is, that this is not the result of manipulation.

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  • You could say the oil price was manipulated by the Saudi decision to keep on pumping in the knowledge that this would hit that price. Once the oil price goes down this will boost the dollar and drag down the prices of other commodities.

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  • Icarus, you could also say that Saudi knows that US wild-cat producers are out of anybody’s control, the glut is structural, and they, with a lower cost of production than others can

    a) afford to weather the storm and

    b) cannot afford to lose market share by not supplying customers.

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