Commodities Growling Like a Bear

Does anybody have any doubt that the equity markets are heavily manipulated by the banks and Uncle Sam? I didn’t think so.

The same clearly holds true for our credit markets, primarily the Treasury market. That said, the commodities market, in my opinion, is much more closely aligned with the real economy. What have commodities done over the last few years? The DJ-UBS Commodity Index was up a mere 16% in 2009 and is down 10% so far in 2010. Over the last two years, the index is down approximately 50%, significantly more than most major equity averages.

What are commodities telling us currently? Let’s navigate.

Bloomberg provides a sobering review of the commodities market today in writing, Commodities’ Biggest Drop Since Lehman Bear Signal,

The biggest slump in commodities since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.

The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.

While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February. Separate reports today showed manufacturing slowdowns last month in China, Europe and the U.S.

“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group Inc. and Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”

The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30.

Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” Achuthan said. “Markets are going to have to deal with the reality of a slowdown.”

If only Tim Geithner and Ben Bernanke could figure out how to manipulate these commodities markets maybe, just maybe, we could keep the shell game going a while longer.

For those who shepherd their capital a little more wisely and carefully, you may want to factor these moves in the commodities markets into your analysis and navigate accordingly.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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