Readers are fond of asking me for forecasts, particularly, recently, in the commodities market. I see three possibility for the commodities markets:
1) They will go up
2) They will go down
3) They will stay about the same
Further than that I am unwilling to say.
Others aren't quite so cautious. There's a bit of discussion amongst the blogs of Paul Krugman's piece on commodity prices; Ryan Avent has a pretty good round up. The case for a continued upward trajectory seems very compelling to me. The problem is, market trends generally look most inevitable right before they're about to collapse. Or as one analyst I knew once said, "I keep telling [my colleagues] no! no! no! If you think the market has capitulated, it hasn't capitulated!"
Every time I am tempted to make confident forecasts about commodities markets, I fix my mind firmly on the spectre of The Economist's $5 a barrel oil cover, which heralded the early innings of the current fantastic run-up in oil prices. That story was written by a very, very smart energy analyst who has forgotten more about oil markets than I will ever know. If he can't foresee major market movements, I'm darn sure I can't.
Unless a person has a net worth running to ten figures, to the left of the decimal point, he's as much of an "expert" on the future prices of commodoties as you are. Even then, caution is advised, as reading the history of the Hunt brothers infamous foray into the silver market will inform.
To quote Karl Marx:
"A commodity appears, at first sight, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties."
My favorite market-analysis blogger, bonddad, likes to say "the market will make a fool out of you every time."
a, potentially, easier prediction to call: "Trends remain in force, until they change"
the larger trend, in effect, is Things v. Paper
Commodities(Things) will continue their gains, in relative value, v. Paper, for awhile longer..
our Paper, the World's, has serious problems..
That said, and past that..no matter the market--Things or Paper--there are sectors that will outperform others(obviously)
O, another truism: "Markets move to make the most people wrong"
I don't think we should write off the possibility of some commodities being priced in complex numbers. There's something about an imaginary component to money that is bound to catch on.
I don't think we should write off the possibility of some commodities being priced in complex numbers. There's something about an imaginary component to money that is bound to catch on.
Shoot, in power systems we already do that. Apparent power S that must be delivered to a load is the hypotenuse of a right-triangle fomed by the real power P (actual useful work being done, measured positive on the x-axis) and the reactive component Q (leading or lagging: positive or negative sign on the y-axis, respectively). Power factor is a unitless value expressed as:
p.f. = P/S = abs(cos theta)
Where theta is the angle between P and S.
The first person to figure out how to make that bit of trigonometry function as a logical commodity pricing predictor will shortly be very, very rich.
OT:
Mouse,
when are you going to put that good hp to work on Distributed Energy Systems?
1. go with the trend, the trend is your friend.
2. when the tide comes in, the ships go up.
3. A trader who dies rich has died before his time.
4. BLSH
5. Bulls make money, bears make money, pigs don't
6. If you stay cool when all around you have panicked, then you haven't heard the news
7. Look for $10/gallon gasoline. If you find it, let me know.
With the bull markets in most commodities, particularly oil, there is a real demand component, and a speculative component. The real demand component will persist until supply catches up with demand, which will probably take a few years, in the case of oil. It will probably take at least that long for large new sources of oil to come online (e.g., the Tupi and Carioca fields off of Brazil), and for alternative vehicles (hybrids, electric, etc.) to expand market share by a material amount. Speculative demand, on the other hand, can disappear in a flash, as speculators dump commodities for stocks or other investments. How much of the current oil demand is speculative? If I had to guess, I'd say somewhere between 10%-20%.
Regarding the commodity I asked Megan about this Saturday, zinc, my guess is that the speculative money has already fled, as zinc prices have dropped about 20% since February.
The most inteeligent post you have ever made. It seriously reflects a wisdom about markets that no more than one in ten thousands has.
If we're talking about investing/speculating in commodities either diversify or go for broke with a little bit of money while keeping most of it safe in treasury bills. In other words, Nassim Nicholas Taleb's black swan approach.