The Weekend Commodities Review
A Market Review and Opinion Report By Head Analyst James Mound
The End of the Commodity Boom
Welcome to the calm before the storm. I believe we are still in a deep global economic recession, but the rate of decline has clearly stabilized in recent months and if investors feel that the stability is giving way to more economic slowdown then the stock and commodity markets are expected to take big hits. Let's not forget that the stock market nearly doubled in just 2 years and commodity prices like oil have about tripled from their lows. To me, these are overbought market conditions that beg for a reason to reverse, and that reason is upon us. Why do you think the stock market took such a big hit when the threat of an economic downturn in the 3rd largest economy in the world made headlines? Without demand there are no profits.
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In commodities, demand is often a fairly stable situation while supply receives much of the analytical focus as fluctuations due to weather, politics and other less predictable events are frequently the catalyst for big price moves. However, when the world demand variable becomes such a moving target as it has been over the last two years, the focus shifts to what the growing population of the world will demand in several key commodities. Thus demand-based shortages become a volatile reality, and the slightest shift in outlook can wreak havoc on commodity prices. If demand is the focus, as it should be, then what happens when growth slows or stops altogether? What happens if or when China slows? What happens if Japan goes into another recession? What happens when the European Union gets hit with another Greece-like economic crisis? To put it simply, the pricing outlook for stocks and commodities need to be adjusted to account for major drops in demand... more about this report