Tuesday, March 08, 2005

Up, up, and away...


March 8 (Bloomberg) -- Commodity prices surged to a 24-year high, led by gains in copper and crude oil, on concern that global economic growth is eroding inventories of raw materials faster than supplies can be replenished.

Copper reached a 16-year high, and oil rose near an all-time high in New York, extending the rally in the Reuters-CRB Index of 17 commodities to the highest since January 1981. The index gained 7.1 percent in February, the most in any month since August 1983.

``Everybody wants to be long of commodities,'' said Stephen Briggs, an analyst at Societe Generale in London. Hedge fund managers ``think that the potential returns in commodities are still very high,'' Briggs said...

Hedge funds and other large speculators have increased their net holdings of 20 physical commodities in the U.S. to their highest in nine months, government figures show.

So-called net-long positions rose to 430,153 futures contracts as of March 1, the highest since June 4, the U.S. Commodity Futures Trading Commission said. A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.

Energy and metals prices ``are moving higher today on the continued concerns regarding the pace of global consumption and the ability of supply to keep up,'' said Michael Guido, director of hedge-fund marketing and commodity strategy in New York at Paris-based Societe Generale SA.

At this point, my equities portfolio has substantially more than shaken off the last vestiges of the "dot com boom," thanks to higher commodities prices, emerging markets, and the disastrous Bush fiscal policies.

At this rate, at some point, to get a further advantage in the market, the Chinese may be willing to let their currency appreciate against the dollar if only to ease their domestic inflation, provided, of course, it doesn't choke off exports.

It's funny when people accuse progressives and centrists of having some kind of vested interest in opposing Bush's policies (or the flip side: hypocrisy, since folks like me are smart enough to profit from Bush's disasters).

So, I'll publicly declare: yes, I have a pecuniary interest at the moment in Bush continuing his disastrous policies. That's simply business. When Bush can create some more rational policies, my money will move around in a heartbeat to accomodate the return of rationality and reason.

Until then me and Warren and George will continue to warn about the "sharecropper" society.

But really folks, you should have seen this a mile away; it's the Repub playbook:

  • Nixon: high oil prices, inflation, removal of the dollar convertability of Bretton Woods leading to a devaluation of the dollar.

  • Carter: As a conservative democrat, Carter's policies resulted in the same high oil prices and further devaluation of the dollar. At least Carter wanted to get America into energy independence, and passed conservation measures and economic incentives that were, in fact, highly successful in curbing America's appetite for oil, which led to declines in prices during the Reagan years..

  • Reagan: Removed many of Carter's economic incentives for energy conservation as prices for oil had dropped in response to them as well as the Reagan recesssion. But the dollar went from over 200 yen to around 120 yen; it tooks threats of a worldwide currency collapse - a response to Reagan's fiscal profligacy- for the folks in Washington to do Graham Rudman (screwing the middle class in the process) which eventually resulted in the "controlled" devaluation of the dollar.

  • Bush: high oil prices from the Iraq war...

  • Clinton: restoration of fiscal responsiblity led to the strongest dollar in years. The only countervailing trend against dollar yen convertability was the deflation in Japan. The political posturing of Greenspan keeps interest rates unnaturally high for much of Clinton's first term.

So, Republicans and conservatives in power mean that in general, the dollar takes a beating, and without fiscal responsiblity, there's the threat of inflation (or high interest rates).

That means commodities, commodity producers, and foreign exchange plays make money, and it means that other industries (with exceptions like defense, or politically connected industries such as big pharma) generally don't.

It's not rocket science. It's merely betting that Bush's cronies will act like Bush's cronies.

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