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substitute the word "grain" for "gold"?

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8026324/Gold-is-the-final-refuge-a...

 

It does appear to me that the notion of capital chasing stuff to avoid currencies that are depreciating in lockstep is now upon us.

 

Last time out when it was mostly just a play about the chronically weakening USD (2002-2008) we ended up with $150 crude oil. For now bearish fundamentals appear to have oil penned in- foodstuffs- livestock, softs and grains seem to be the places where bets are getting placed. Record OI in several different commodities in the past few weeks.

 

Problem is that at the moment cheap commodities isn't the problem. The problem is global banking insolvency- if you marked loans to market the US banking system is insolvent and if you marked member soveriegn bonds that banks hold to market, the European banks are insolvent. China has a bigger cushion but nobody really understands their financial system and Japan's banks are finally better but they are a fiscal trainwreck.

 

It may make the economists happy if the inflation rate stays positive, they will have defeated deflation (lol), but higher food and energy prices are actually deflationary in terms of the capacity for people and companies to service debt.

 

But anyway, I'm guessing that it will remain "risk on" until the election, at least, then we'll see.

 

fwiw,h

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10 Replies
Contributor

Re: substitute the word "grain" for "gold"?

If it gets to $1200 a bu,  I am going to sell.

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Senior Contributor

Re: substitute the word "grain" for "gold"?

I don't see gold and grain as being parallel concepts. At all.

 

I have to assume that you make the assumption that fund money,speculation, etc. are determining factors in determing grain price. I don't. I do believe it is true for gold. More or less, all the gold ever mined is what we have today. Grain gets another chance every year. Supply more or less determines price in my world.

 

With stagnate wages for the last 10 years it's been true that increased price of energy or food squeezes out capacity to comsume other products. But our food is so ridiculously cheap that I don't see that as a determining factor - even if fund money does pour into funds. From a historical standpoint it would be hard to say that current oil prices are out of line.

 

There is a huge amount of money standing on the sidelines and the strong hands are looking for a return - and will cook up any method to get it. The exact same parallel with Wall ST and why using mortgage contracts as fodder for bogus securities and insurance (credit swaps) were thought to be a miracle money machine tyhat solved the 'problem' of low interest.

 

I'll take mild inflation any day over deflation. So far as I can tell mild inflation is here to stay for the forseeable future because credit and capacity for consumption are voluntarily and necessarily being curtailed. Deflation would accelerate the assault on the middle class standard of living.

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Contributor

Re: substitute the word "grain" for "gold"?

Energy prices and grains have followed each other closely for nearly a decade.  It bothers me that they have not tracked each other.  Something is gonna give, but I have no idea on how this will unfold.

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Senior Contributor

Re: substitute the word "grain" for "gold"?

There is no guarantee of supply for grain, but we know the demand - on a yearly cycle. For oil, we basically know the supply every year regardless of longer term trends, and we also know the demand, though it is slightly elastic since auto use isn't guaranteed at any price.

 

It is only recently that corn has a relationship to oil.

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Frequent Contributor

Re: substitute the word "grain" for "gold"?

Making a bet on a game doesn't alter the outcome of the game. The notion that hedge funds making bets at the NYMEX changes what an Italian cab driver pays for petrol isn't how it can work, at least not for months on end.

Check this out;

http://www.ritholtz.com/blog/2010/09/crb-raw-industrials-index-breaks-out-to-highest-since-may-08/

That raw industrial commodity index is comprised of stuff that isn't traded on any exchange. Everything from silk to tallow, to sulpheric acid comprises that index, and its taking out all time highs.

Recently China embargo'ed rare earth elements (REE) to Japan. China controls most of the world's REE. You cannot build a solar panel or a wind tower without them.

This sort of Resource Nationalism is simply going to become more and more commonplace as the world chews through the low-hanging fruit. More of the exporting countries will horde their resources as it becomes more obvious the threat of increased production elsewhere is merely a spector. The USA ethanol policy is another example of an exporting country holding production from the export market.

The entire inflation/deflation thing was so last century. This century is all about using less and less scarce resources to buy more and more bling, n bulls#*t. If baby grand pianos are your currency, then you live in inflationary times. If galium is your currency, you live in steep deflation.

The fed can't make more oil, and 2010 saw non-opec oil production resume its inexerable decline into the abyss. Sure front month oil contracts are cheaper than smoke, but the fundamentals will look differant as supply slowly worsens.

Japan owns a positive trade balance. No country with a positive trade balance in the history of the world experianced any serious inflation. Every country with massive inflation always had big unemployment, and big trade deficit at same time.

Since oil's run up this century, not a single alternative of scaleable flows has shown up. Modern science has no answer for resource constraints, because as we are learning, rare metals trumps scarce oil.

The people betting on deflation will have themselves a winner when looking at suburban homes, campers, boats, ski resorts, football tickets, hockey lessons, beach front property, and thoroughbred stallions.

American living standards as a general rule will suffer more every year as whole neighborhoods located too far from resources get evacuated.

The great news is that folks who were left out of last centuries boom will strike gold this century as small towns in rural farming communities re-populate.
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Veteran Advisor

Re: substitute the word "grain" for "gold"?

Het, SD/OBG,

 

Great to hear from you!

 

I have a lot of energy questions for you- shale fracking, Bakken, more that don't immediately come to mind. Do you still check in here from time to time?

 

I don't disagree with anything you write but it comes back to where we were in 2008- there is a tipping point between resouce scarcity and debt service that makes it extraordinarily diffiuclt to bet on in the short term.

 

Are you familiar with Stoneleigh at oildrum Canada?  I really haven't followed her for a long time but saw a video where I thought she did an excellent job of explaining that. Probably too neat if anything, because it is messy.

 

Anyway, best to you, h

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Frequent Contributor

Re: substitute the word "grain" for "gold"?

Note: the CRB Raw Industrial Commodity Index is differant from the normal CRB Index. The former is comprised of stuff not traded on any exchange. The latter is made up of traded (speculated) commodities.

Why is it that non-traded commodities are rising faster than traded ones? Its either;

A) Specs are holding stuff they can trade artificially down... or

B) Its just the way the fundamentals are.

BTW, how long is the shelf-life of glyphosate?
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Frequent Contributor

Re: substitute the word "grain" for "gold"?

Yes! I do know Stoneleigh and Ilargi of Automatic Earth deflationist fame. They set me straight in '08. You tried, but they succeeded. (Had I listened to you Id be retired)

It looks like every time the price of oil doubled within a 365 day period during the 20th century, deflation followed. Evidently that rule also applies to this century?

Drill rigs are moving from the Haynesville, Barnett, Marcellus over to the Bakken, Eagle Ford etc. They are concentrating capital on the" wetter" shale plays. Lots of wall street$ $ thrown that way. Time will tell which part of the shale patch will send it back...

FWIW, I sold too much grain too cheap this year. :-)

Take care my friend Noxie!
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Veteran Advisor

Re: substitute the word "grain" for "gold"?

Well, the gold crowd (which I've had a bit of a love/hate relationship with over the years) has always said that the big bullion banks use the Comex to keep gold prices down. I'm mostly agnostic on that particular argument.

 

But I suppose there is a really frightening case that a von Mises sort of "crackup boom" could come on real fast and blow everything to smitereens.

 

For now I'll remain of the opinion that 2008 was the crackup boom and all we're looking at now is an echo boom.

 

But one should remain open to new interpretations as evidence presents itself.

 

Best, h

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