Commodity crash - worse than 2000 tech bust

Let me preface this by saying that I feel for those who are experiencing financial difficulty due to this credit crisis but for those of us who are lucky enough by circumstance or age to be able to buy in for the long term at current prices we are truely fortunate. I started buying in to the ag complex last month and will continue to do so for at least the next year first ags, next will be energy, and eventually I will also buy base metals. I say fortunate because I feel that this is an opportunity akin to being around in the early 1930's and having had the opportunity to buy in at multidecade lows.
 
Quote from gastropod:

propseeker, I hear what you are saying, but I couldn't even order platinum or palladium. Yes, there is the f'ing bs out there about, "Well the little investor seeking under 1,000 oz. Ag or 100 oz. Au can't find any, but that is not a sign of shortage" - bullshit! If the spread is high enough - how much would it cost to convert two 5,000 oz. bars of silver into 10,000 one ounce bars or silver rounds? Maybe a buck or two per ounce....and the spread is like $10/oz! Why not do it? I would!!! Have YOU ever gone and take delivery on gold or silver? I would love to know your experience with it! Straight up - the rule books have scared me off - they can "deliver" something other than what you bargained for - you would be out. Yes, I have read the rule books.

As to the "rumors" - I labeled them as such. I do not feel obligated to delineate a search for anybody ;-)

-gastropod
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you have a lot of limiting beliefs in there. the two main ones are that inefficiencies in a retail market are rare and unbelievable, and the second that the only way to source large quantities of metal is to take delivery of a futures contract.

since you called bullshit, maybe you should be the one to do the research as to why those beliefs might be flawed and why they really provide no support for a shortage argument.
 
I thought there was no commodity bubble, that prices were going to continue higher due to global demand. How could anyone possibly think that commodities were going even higher, oil continues to fall, my new target is $30. Could see go even lower than that.
 
To me it seems price finding is a mix of available money, psychology and supply and demand fundamentals. Available money looks like the dominant factor at this time. When money is tight prices have a hard timet rising and when money is needed badly prices fall be other fundamentals what they may.

Isn't it beautiful how the markets can surprise? To me it demonstrates why it is right to let price behaviour be the final determinant of positions taken. Should price behaviour not confirm fundamentals then I'd wait and if they are clearly opposed then going with price and against the fundamentals is indicated. Cotton this year is a good example.

After the tides have turned there will be plenty of time to get long again.
 
Quote from Cutten:

I think the price declines can't be explained by the exit of speculators alone. That would have caused a normal 1/3 correction, a bit like stocks in 1998 or 1987, or even the nasdaq in spring/summer 2000, not a historic price bust of 70% in less than half a year. Also it has been very fast even for a speculative unwind.

IMO the size of the fall is because you had the exit of speculators immediately followed by a catastrophic liquidity crunch and real economic slump - not just in the west but the periphery (BRIC). Any one of those factors alone could have caused a typical 25-35% bull market correction/mini-bear. Having the unwind, liquidity crunch, AND worldwide recession emerging simultaneously is what IMHO turned a 25-30% fall into a historic 70-75% rout. Remember, even the CEOs of the bustout financial blue-chips had no idea how bad their firms would get - and they were the ones who wrote the CDS and other stuff.

I remember in late 2007 and early 2008 thinking the potential slowdown recession could cause some problems for commodities eventually, but as long as they kept rising I was happy to play the trend - albeit with a stop. However, despite being a bear on the western economies, I didn't anticipate anything like the carnage we got in September and October. I think even the most bearish commentators have been surprised how bad things got.

The commodity producers themselves have clearly been caught out. Not just by the slump in prices, but more importantly, the collapse of credit. You see companies like CHK and PBR - massive blue-chip players - who are now having to liquidate assets (into a huge slump - horrible timing) because the credit markets have seized up. Many such firms just assumed bank credit would always be available, and have been badly caught out and some may even default.

I think it just shows the importance of risk control, and planning for surprises and extreme scenarios. If you didn't have a stop, or some protective puts, then you got raped. No matter how much conviction you have, there must be a point at which you say "Ok, the market isn't doing what it should if my idea was right - I had better start reducing my positions."

I agree that without the major financial panic, the boom would have continued into the "bubble stock" phase. I think that caught a lot of people out, including me, they assumed the party would keep going with only normal 20-30% corrections until you got to the bubble phase - shoeshine boys, hole in the ground companies etc. That was what happened with prior bubbles like tech in the 1990s, and real estate in the 2000s, stocks in the 1920s etc. Just goes to show that even a reliable playbook doesn't work all the time - you need a plan B just in case.
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as bill gross said recently, past ways to analyze equities are out the window because we were living in a levereged world. i think inflation ramps up and commodities rally over the next couple years until the bond market takes control of interest rates and punishes government spending/corporate welfare.
 
Quote from flyingiguana:

as bill gross said recently, past ways to analyze equities are out the window because we were living in a levereged world.
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In other words, "this time it is different".
 
Quote from Cutten:



The main difference, and why I did not think it was a huge bubble, was the lack of retail participation. You didn't see taxi drivers, grandmothers, and newspaper boys speculating on margin and becoming millionaires from commodities.
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You probably didn’t visit Australia last year :D
 
Leverage,

Almost all of those funds are leveraged so when there is a correction, they have to sell for liquidity reasons. That's opportunity and the intention of the temporary credit contraction.
 
Quote from Random.Capital:

It appears commodities as a class as still about 30% above the long-run average throughout the 90s and into the early 2000s. Is there a compelling argument for commodity prices to *not* return to those levels?
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Are you allowing for inflation and increased world wide demand? They obviously were to high but another 30% drop still?

I like Rio Tinto puts here, to sell that is. You can get around 16.00 for the April 60's. Those, if exercised, will get me in around 92% below the peak price. I'm OK with that. RTP is currently Paying about 6.5%.
 
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