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Let the bubble propping begin...I don't see what data they would have seen recently to indicate a slowing economy. If the lower new home prices were one, you sure wouldn't know it by the headlines from yesterday! Oil is still above $70/bbl, gas is almost at $3/gallon, gold is heading towards $650/oz, the (fake) unemployment number is low,and consumer confidence is supposedly at a 4 year high--the markets are SCREAMING inflation alerts. Why would they stop? The only reason, IMO, is to prop up housing, but there is no guarantee that if they stop raising rates, that long-term rates won't continue to catch up from the "conundrum".
These morons will destroy the dollar.
Global savings glut. What a bunch of hogwash.
The only problem is a massive housing bubble/ATM housing machine and the leverage associated with it.
Sounds like rate hikes are coming to end.
Bubble Meter Post
David
"...signifcant uncertainty ...."
Doesn't he get paid to be somewhat certain?
"Hate to break it to you, but I don't. I own my own home and save over $2000 per month. Have fun running up your charge card at Express and flushing money down the toilet on rent."
Congratulations, here's a dollar, so you can make it $2001 this month. I don't know how you came to have such a negative opinion of me and how you know of my spending habits simply because of my fact-based, accurate comments...sorry, I forgot that every homeowner in America is now rolling in dough that will stick around forever, just like it did in '00, c'cause it's different this time, really, it is!
Um.. that $2001 will be worth a lot less going forward.. The dollar is getting crushed in te markets today. When the fed stops it is going to get ugly.
well a pause is baked...but fed is confused now as to what to do.
but the rate increase may not be over.. stay connected.
BB on inflation...
From an email I got today from one of my clients... doctored to protect identities:
Here's a chart of metal prices over the last five years... HERE
However the spot price has dropped about 5 cents today... five years ago that was as much as the price moved in a year.
Speculation? Inflation? Who knows but something 'money-ish' is happening.
Bernanke gives our representatives this wisdom:
Nevertheless, to allow the expansion to continue in a healthy fashion and to avoid the risk of higher inflation, policymakers must do their best to help to ensure that the aggregate demand for goods and services does not persistently exceed the economy's underlying productive capacity.
Only a trillion/year or a measely 8% of GDP if we can trust offical reports.
BEA : Page Not Found
Hard to rein in the country's MNCs that are "exceeding the (domestic) economy's underlying productive capacity". And hard to believe that Bernanke is not this nuanced.
Coincidentally the illegal aliens are also reported to be 8% of the labor force in this country (and an astounding 25% of the residential construction) and those same representatives that looked the other way for nearly a decade (preoccupation with lobbyists maybe) will again have to make decisions that
help to ensure that the aggregate demand for goods and services does not persistently exceed the economy's underlying productive capacity.
Not everybody is counting on them to do the right thing --not without significant compensation for their personal sacrifices.
dryfly,
Speculation may well be playing a part, but commodities are truly in a secular bull market. There can be violent corrections of course, like the stockmarket had in 1998.
If you look at worlwide investments in mining and exploration and in refining of raw mineral products, it has been low for nearly 20 years. In this time underlying demand trend has been growing. Corrections like the Asian crisis in 1997-98 deprressed demand, again distracting attention from the underlying change taking place in demand-supply balance.
Most commodity industry executives are people who have lived through tough times in the last 20 years. They remember the rise in prices in the 1970s, the massive investments into the mid 1980s and the relentless decline in prices into the late 1990s. The people who have survived as executives are those who have been cautious, rather extremely pessimistic, in their outlook for commodity prices and acted accordingly. This kind of like general corporate execs in the immediate postwar era, who were very conservative, having lived through the Depression.
In short, this kind of environment will only exacerbate imbalances. Eventually, supply will adjust. But that takes a while.
I fully agree tea - the commodity folks were a pretty careful bunch. But some of the current pinch is demand exacerbated by excess money everywhere. Somebody is going to have to burn some of that money up... more capacity isn't going to be enough.
It will be a dirty job burning all that money but somebody has to do it.
Fly,
The Fed is aware that commodity prices are now in a Nasdaq-type bubble, but that does not necessarily imply that American monetary policy will be tightened as aggressively as many are starting to expect. The view in Washington is that commodities and gold are a small and esoteric asset class, not important enough in their share of American consumption to cause major inflationary pressures and not significant enough in financial markets to trigger major dislocations, whether they continue to rise or suddenly collapse. For the Fed to tighten in response to soaring copper or gold prices, would be a classic case of the tail wagging the dog.
Who - I agree with you that is what the FED & wonks think... and I would agree with THEM if it were only precious metals like gold & silver... but zinc & copper are pretty basic & used in lots of products that are everyday (motors for appliances & automobiles for example) Likewise there has been a run up in nickel & moly & chromium... ingredients for high strength steel.
Steel scrap & aluminum ran up a few years ago and are still expensive.
Couple that with petroleum generated price increases in polymers & composites and it is pretty clear this isn't a small 'esoteric' effect. Damn near everything we buy is made out of metal or plastic.
Now it could all 'flame out' if demand plunged (say for new homes and/or automotive) but that hasn't happened yet as we know.
I don't know how much of these price increases are due to real scarcity (especially for zinc & copper where supplies are very tight) and how much is excess money. I'm not sure we'll ever know. But it is happening & will likely kick through more than the FED either knows or is letting on.
Dryfly,
re: Zinc chart
Have you ever seen a vertically rising chart pattern like that for Zinc that didn't come crashing down?
Have you ever seen a vertically rising chart pattern like that for Zinc that didn't come crashing down?
Not that I can remember - but past doesn't always predict the future. 'This time' it could really be 'different'.
There might be real scarcity issues. I follow the zinc biz due to my job and from what I understand a lot of the available ore has already been mined & is out in use. We'd have to actually 'recycle' to keep the supply adequate... not that that would be a bad thing, just not an inexpensive thing.
Similar situation with many alloys - sort of a 'Peak Alloys' story.
If so then maybe it isn't a money growth phenomenon at all but real scarcity... and it will only get tighter. But it sure looks like speculation & money growth bubble-ish activity doesn't it?
Yes copper and zinc go into lots of things, but what % of peoples consumption do they really represent, far far less than oil I would imagine, and plenty of people are making the case that oil prices matter much less now than they did in the 70's because the US is so much less energy intensive etc. Wouldn't the same tend to hold true for copper? Also there is a very large latent supply of copper/zinc alloy sitting in jars on the dresser of just about everyone, called pennies. Damm things aren't worth anything as currency, might as well use them for making wire.
That would be my bet. Plus, there have to be substitutes for zinc, right?
hing will change to bring down the price - free market ingenuity would almost seem to guarantee this happening.
Correction to above post ...
Something will change to bring down the price ...
Also there is a very large latent supply of copper/zinc alloy sitting in jars on the dresser of just about everyone, called pennies. Damm things aren't worth anything as currency, might as well use them for making wire.
You would make a good die caster... turns out pennies are mostly zinc with a thin copper plate. A die caster I know (jokingly since its technically a crime) told me he starts melting & casting pennies when zinc hits $1.80 a lb... at that point the metal is worth more than the coin. Instead of having to fight with his alloy suppliers just go to the bank and 'buy' a couple tons pounds of pennies... lol.
Seriously, I wouldn't sweat one or two commodities going up in price... but it is spreading across the whole spectrum & globally too (I work with companies active in China - same story there).
I maybe wrong but I believe this is a bigger problem than the FED thinks... some of it is clearly 'scarcity' & real global demand... but the speed of price increase makes me think some is money supply & speculation. I really have no idea how much of each is involved so sure wouldn't criticize others whose opinion differs with mine. At this point I'm just a clueless observer.
That would be my bet. Plus, there have to be substitutes for zinc, right?
For galvanizing (as in sheet metal in autos & HVAC)... no substitutes. This is about half the demand.
For structural components like bearing carriers in motors & such - MANY substitutes... but they are going up too (primarily plastics & aluminum).
Short answer is that inflation pressure for zinc will parallel overall manufacturing & consumption inflation pressure from general growing demand & supply tightening. Copper is trickier - more uses & more diverse uses... I wouldn't even wager to guess how copper flows through the economy.
Another point to consider re: soaring metal prices.
Doesn't alot of this have to do with the fact that there's a significant lag time for bringing on increased supply relative to short-term demand pressures?
In other words, is there really a shortage of zinc ... or is there an amply supply of zinc that will simply take time to be mined and turned into increased supply?
In zinc's case there really is a shortage. I read somewhere that approximately HALF of all the zinc in North America is in products already out there... so half is in the ground and half is in products & in landfills... In the states its way more than half in products & landfills... we've exhausted most all our ore.
What makes it even crazier is that North America - especially Canada - has quite a lot of zinc... Unlike other alloys where we depend almost exclusively on supplies from Russia or Africa.
There ARE processing capacity issues though too - a number of smelters closed for various reasons - but that isn't the only issue working here. Supply & maybe inflation/speculation.
There is something strange going on with non-ferrous base metals like aluminum, zinc, copper, titanium... but I don't know the full story, only see the effects.
Dirk van Dijk: How much of the US being less energy intensive is because of manufacturing offshoring, i.e. merely moving the energy/pollution issue elsewhere, so that it's now nominally sailing under a different flag? Just a thought.
Of course energy efficiency in many areas has been increased a lot, but in part it has been compensated for by running more energy-consuming processes in a vertically disintegrated economy. Driving around, power for operating buildings, computers, IT equipment 24/7, etc.
CM: I think you have a very good point there, the "weight" of U.S. GDP has certianly fallen quite a bit since the 60's or 70's. We used to lead the world in things like Steel and Aluminum production, now we are well down on the ranking tables. Those heavy industries require lots of energy. The output of MSFT and GOOG doesn't weigh anything and uses only a miniscule amount of energy vs. the output of X, AA or GM.