Home » Posts tagged 'commodity price collapse' (Page 2)

Tag Archives: commodity price collapse

All eyes are on Chesapeake.

The price of natural gas in the US has gotten completely destroyed. The process started in July 2008, at over $13 per million Btu and continues through today, at $1.77 per million Btu.

In between, natural gas traded at prices that, for much of the time, didn’t allow drillers to recoup their investments, leading to permanently cash-flow negative operations, and now huge write-offs and losses, defaults, restructurings, and bankruptcies.

You’d think that this sort of financial misery would have caused investors to turn off the spigot, and for production to fall because drillers ran out of money before it got that far.

But no. Over the years, money kept flowing into the industry. In this Fed-designed world of zero interest rate policies, when risks no longer mattered, drillers were able to borrow new money from banks and bondholders and drill that money into the ground, and production soared, and more money poured into the industry based on Wall Street hoopla about this soaring production, and this money too has disappeared.

In the process, the US has become the largest natural gas producer in the world – and the place where the most money ever was destroyed drilling for natural gas.

But now the spigot is being turned off. And much of the industry is heading toward default and bankruptcy. Granted, the largest producer in the US, Exxon, has apparently bigger problems on its global worry list than the misery in US natural gas. Its stock is down only 25% since June 2014, and its credit rating is still AAA. But even if it gets downgraded a couple of notches, Exxon can still borrow new money to fund its operations, dividends, and stock buybacks, and service its existing debt.

But the rest of the industry – along with its investors and banks – is sinking deeper into fiasco.

…click on the above link to read the rest of the article…

Canadian dollar on track for 2nd-worst year ever

December 19, 2015

Canadian dollar on track for 2nd-worst year ever

Currency is down 17% year-to-date against the U.S. currency

The Canadian dollar hasn't been at par with the U.S. dollar for three years. This year, the loonie's slide against the American dollar was one of the biggest ever.

The Canadian dollar hasn’t been at par with the U.S. dollar for three years. This year, the loonie’s slide against the American dollar was one of the biggest ever. (Mark Blinch/Reuters)

Assuming that the loonie stays at current levels (and that may be a reckless assumption given the steady slide we’ve seen of late) our dollar is on track to record its second-worst year ever, according to calculations from BMO Capital Markets, with a drop of 17 per cent since the start of the year.

That would be second only to 2008’s drop of 18.6 per cent, when the financial crisis was gripping much of the industrialized world.

Economists at the National Bank of Canada put it this way in a currency outlook this month: “This year is one to forget for holders of the Canadian dollar.”

To put this slide into perspective, of course, it’s necessary to go back more than one year. Remember when the dollar was on par with its American counterpart? It wasn’t that long ago. The two currencies were at par as recently as December 2012.

Today, it costs at least $1.40 to buy a greenback that could be swapped one-for-one with our loonie three years ago.

Experts cite several main reasons for the slide since then:

Slumping oil prices. With oil plunging to around $35 US a barrel (it was around $60 US at the start of the year and more than $100 US in the middle of last year), the hit to our currency has been huge. Canada is a large exporter of oil, which is priced in U.S. dollars. Prices of gold, copper and coal, which Canada also exports in abundance, are also slumping.

…click on the above link to read the rest of the article…

Epocalypse Soon: The Great Economic Collapse is Happening

December 15, 2015

Epocalypse Soon: The Great Economic Collapse is Happening

I use the term “epocalypse” to name the last days of the global economy as we know it — a global economic collapse of biblical proportion. It is economic, epochal, an apocalypse that will change the world and a collapse … all in one word that sounds the right size for what I’m talking about. Call it the “Great Collapse” or the “Epocalypse.” Whatever you call it, it’s about to change the world.

I am referring to an economic crisis so big that the global economy will be forever different after those days. This economic collapse has already begun throughout the world, but I am holding off on using the title “Epocalypse Now” until the US stock market joins the crash. That’s the point at which we’re all in (i.e., at a level where everyone knows it and denial that it is happening falls apart). I anticipate making that call in a matter of days now. Here is where we stand at present:

Economic collapse is already global

Open your eyes to a wider scope than just the US stock market, and it’s as if a fog lifts all around you to reveal a war-ravaged landscape. It may not be like the landscape described in the New Testament book, The Apocalypse (The Revelation), but it’s moving in that kind of direction. Let me describe what is already unfolding in case you haven’t caught the big picture.

The energy crash is certain to worsen. The news last week that OPEC is not going to lower output, makes it clear that OPEC is in the energy price war for the duration. Driven by the Saudis, OPEC nations will assure oversupply until they see several major oil companies in the US collapse.

…click on the above link to read the rest of the article…

The End of the Bubble Finance Era

December 13, 2015

The End of the Bubble Finance Era

We are nearing a crucial inflection point in the worldwide bubble finance cycle that has been underway for more than two decades. To wit, the world’s central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.

We will get to the Fed’s upcoming once in a lifetime shift to raising rates below, but first it is crucial to sketch the global macroeconomic context.

In a word, we are now entering an epic deflation. Its leading edge is manifested in the renewed carnage in the commodity pits.

This week the Bloomberg commodity index, which encompasses everything from crude oil to soybeans, copper, nickel, cotton and livestock, plunged below 80 for the first time since 1999. It is now down nearly 70% from its all-time high on the eve of the financial crisis, and 55% from its 2011 recovery high.

Wall Street bulls and Keynesian apologists for the Fed want you to believe that there isn’t much to see here. They claim it’s just a temporary oil glut and some CapEx over-exuberance in the metals and mining industry.

But their assurances that in a year or so current excess supplies of copper, crude, iron ore and other commodities will be absorbed by an expanding global economy couldn’t be farther from the truth. In fact, this error is at the heart of my investment viewpoint.

We believe the global economy is vastly bloated with debt-based spending that can’t be sustained. And that this distortion is compounded on the supply side by an incredible surplus of excess production capacity. As well as wasteful malinvestments that were enabled by dirt cheap central bank credit.

…click on the above link to read the rest of the article…

Bank of Canada Crushes Loonie, Creates Mother of All Shorts

December 12, 2015

Bank of Canada Crushes Loonie, Creates Mother of All Shorts

Clear winners: rich Chinese who buy homes in Canada.

The Canadian dollar swooned 1% against the US dollar on Friday, to US$0.7270, after having gotten hammered for the past six of seven trading days. It’s down 5% in November so far, 15.5% year-to-date, and 31% from its post-Financial Crisis peak of $1.06 in April 2011. It hit the lowest level since June 2004.

The commodities rout would have been bad enough. Given the importance of commodities to the Canadian economy, the multi-year decline in the prices of metals, minerals, and natural gas, and then starting in mid-2014, the devastating plunge of the price of oil, would have been sufficient in driving down the loonie.

That the Fed has tapered QE out of existence last year and has been waffling and flip-flopping about rate hikes ever since made the until then beaten-down US dollar, at the time the most despised currency in the universe, less despicable – at the expense of the loonie.

Those factors would have been enough to knock down the loonie. But it wasn’t enough, not for the ambitious Bank of Canada Governor Stephen Poloz. The man’s got a plan.

He is in an all-out currency war. He’s out to crush the loonie beyond what other forces are already accomplishing. He’s out to pulverize it, and no one knows how far he’ll go, or where he’ll stop, or if he’ll ever stop. He has singlehandedly created the short of a lifetime.

It should spook every Canadian with income and assets denominated in Canadian dollars and those wanting to buy a home in Canada (we’ll get to that bitter irony in a moment).

Poloz has been in office since June 2013, and this is what he has accomplished so far:

…click on the above link to read the rest of the article…

Plunging Commodities Interfere With The New World Order

December 9, 2015

Plunging Commodities Interfere With The New World Order

Anglo American, a British company, and one of the world’s biggest miners, and a ‘producer’ (actually just a miner, how did those two terms ever get mixed up?!) of platinum (world no. 1), diamonds, copper, nickel, iron ore and coal, said today it would scrap dividends AND fire 85,000 of it 135,000 global workforce (that’s 63%!). Anglo is just the first in a long litany line we’ll see going forward. Commodities ‘producers’ are being completely wiped out, hammered, killed, murdered. They’ve been able to hedge their downside risks so far, but now find they can’t even afford the price of the hedges (insurance) anymore. And then there’s all the banks and funds that financed them.

And they’ve all been gearing up for production increases too, with grandiose plans and -leveraged- investments aiming for infinity and beyond. You know, it’s the business model. 2016 will be a year for the record books.

Just check this Bloomberg graph for copper supply and demand as an example. How ugly would you like it today?

And what’s true for copper goes for the whole range of raw materials. Because China went from double-digit growth to shrinking imports and exports in pretty much no time flat. And China was all they had left.

Iron ore is dropping below $40, and that’s about the break-even point. Of course, oil has done that quite a while ago already. It’s just that we like to think oil’s some kind of stand-alone freak incident. It is not. With oil today plunging below $37 (down some 15% since the OPEC meeting last week), it doesn’t matter anymore how much more efficient shale companies can get.

They’re toast. They’re done. And with them are their lenders. Who have hedged their bets too, obviously, but hedging has a price. Or else you could throw money at any losing enterprise.

…click on the above link to read the rest of the article…

Looney Plunges As Canadian GDP Collapses Most Since 2009

December 1, 2015

Looney Plunges As Canadian GDP Collapses Most Since 2009

Who could have seen that coming? It appears, for America’s northern brethren, low oil proces are unequivocally terrible. Against expectations of a flat 0.0% unchanged September, Canadian GDP plunged 0.5% – its largest MoM drop since March 2009 and the biggest miss since Dec 2008. With Canada’s housing bubble bursting, it’s time for the central planners to get back to work and re-invigorate the massive mal-invesment boom (and ban pawning of luxury goods).

In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:

Since then it has gotten far, far worse for Canada… GDP is down 0.5% MoM (and unchanged YoY – the worst since Nov 09)

The initial reaction is a tumbling looney…

“One Big Shock Away from a Global Downturn…”

November 24, 2015

“One Big Shock Away from a Global Downturn…”

Zombies vs. Cronies

DUBLIN – Most elections these days are contests between cronies and zombies. The left favors the zombies. The right favors the cronies.

In yesterday’s presidential elections in Argentina the zombies lost. It’s time for the cronies to take over.

New Argentine president Mauricio Macri – the era of the Kirchner dynasty is over.
Photo via diarioz.com.ar

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

November 23, 2015

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.

Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.

…click on the above link to read the rest of the article…

The Long, Cold Winter Ahead

November 21, 2015

The Long, Cold Winter Ahead

Not Immune

Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch.

Photo credit: David Byrne

If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are rolling over. The U.S. economy would power through. Moreover, stock prices had achieved a permanently high plateau.

Growth in global trade has been slowing down for some time. This chart is slightly dated, but in US dollar terms, global export growth has recently turned deeply negative – click to enlarge.

But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation. Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with.

Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all.

More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, let’s turn to Dr. Copper…

…click on the above link to read the rest of the article…

The Commodity Roller Coaster

November 19, 2015

The Commodity Roller Coaster

CAMBRIDGE – The global commodity super-cycle is hardly a new phenomenon. Though the details vary, primary commodity exporters tend to act out the same story, and economic outcomes tend to follow recognizable patterns. But the element of predictability in the path of the commodity-price cycle, like that in the course of a roller coaster, does not make its twists and turns any easier to stomach.

Since the late eighteenth century, there have been seven or eight booms in non-oil commodity prices, relative to the price of manufactured goods. (The exact number depends on how peaks and troughs are defined.) The booms typically lasted 7-8 years, though the one that began in 1933 spanned almost two decades. That exception was sustained first by World War II and then by the post-war reconstruction of Europe and Japan, as well as rapid economic growth in the United States. The most recent boom, which began in 2004 and ended in 2011, better fits the norm.

Commodity-price busts – with peak-to-trough declines of more than 30% – have a similar duration, lasting about seven years, on average. The current bust is now in its fourth year, with non-oil commodity prices (relative to the export prices of manufactures) having so far fallen about 25%.

Commodity-price booms are usually associated with rising incomes, stronger fiscal positions, appreciating currencies, declining borrowing costs, and capital inflows. During downturns, these trends are reversed. Indeed, since the current slump began four years ago, economic activity for many commodity exporters has slowed markedly; their currencies have slid, after nearly a decade of relative stability; interest-rate spreads have widened; and capital inflows have dried up.

Just how painful the downturn turns out to be depends largely on how governments and individuals behave during the bonanza.

…click on the above link to read the rest of the article…

The Great Fall Of China Started At Least 4 Years Ago

November 19, 2015

The Great Fall Of China Started At Least 4 Years Ago

Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light’.

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

…click on the above link to read the rest of the article…

Junk Bonds Under Pressure

November 18, 2015

Junk Bonds Under Pressure

While the Stock Market is Partying …

There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007.

Photo credit: Getty Images

At first it was assumed that the most highly rated tranches of complex structured products would be immune, as the riskier equity tranches would serve as a sufficient buffer for credit losses. When that turned out to be wishful thinking, it was argued that the problem would remain “well contained” anyway. After all, sub-prime only represented a small part of the overall mortgage credit market. It could not possibly affect the entire market. This is precisely the attitude in evidence with respect to corporate debt at the moment.

A weekly chart of high yield ETF HYG (unadjusted price only chart) – click to enlarge.

The argument as far as we’re aware goes something like this: there are only problems with high yield debt in the energy and commodity sectors. This cannot possibly affect the entire corporate credit market. We should perhaps point out that in spite of this sectoral concentration, problems have recently begun to emerge in other industries as well (a list of recent victims can be found at Wolfstreet).

The argument also ignores the interconnectedness of the credit markets. Once investors begin to lose sufficiently large amounts of money in one sector, the more exposed ones among them (i.e., those using leverage, a practice that gains in popularity the lower yields go, as otherwise no decent returns can be achieved), will start selling what they can, regardless of its relative merits. This will in turn eventually make refinancing conditions more difficult for all sorts of industries.

…click on the above link to read the rest of the article…

Weekly Commentary: Risk Off?

November 15, 2015

Weekly Commentary: Risk Off?

The “Granddaddy of All Bubbles” thesis rests upon the view that the world is in the midst of the precarious grand finale of a multi-decade global Credit and financial Bubble. When a Bubble bursts, system reflation requires an even larger fresh new Bubble. This has repeatedly been the case going back at least to the “decade of greed” late-eighties Bubble in the U.S. These days the world confronts the terminal Bubble phase partially because of the unprecedented scope of the China and EM Bubbles. It’s simply difficult to imagine another more far-reaching Bubble.

Also critical to the finale Bubble thesis is that the “global government finance Bubble” – encompassing unprecedented excesses in sovereign debt, central bank Credit and government market manipulation – has engulfed the very foundation of contemporary “money” and Credit. It’s again quite a challenge to envisage a new financial Bubble inflation cycle following a crisis of confidence at the heart of global finance.

As I’ve posited repeatedly, the global Bubble has been pierced. There’s more confirmation again this week. The collapse in commodities and EM currencies along with the faltering Chinese financial Bubble mark an historic inflection point. Global policymakers have gone to incredible measures to stabilize market, financial and economic backdrops. Yet reflationary measures will continue to only further destabilize.

When policy-induced “risk on” is overpowering global securities markets, fragilities remain well concealed (and my prognosis appears ridiculous). Fragilities, however, swiftly manifest with the reappearance of “risk off.” Rather quickly securities markets demonstrate their proclivity for illiquidity and so-called “flash crashes.” So after an unsettled week in global markets, the critical issue is whether “risk on” is giving way to “risk off” dynamics.

…click on the above link to read the rest of the article…

4 Harbingers Of Stock Market Doom That Foreshadowed The 2008 Crash Are Flashing Red Again

November 12, 2015

4 Harbingers Of Stock Market Doom That Foreshadowed The 2008 Crash Are Flashing Red Again

So many of the exact same patterns that we witnessed just before the stock market crash of 2008 are playing out once again right before our eyes. Most of the time, a stock market crash doesn’t just come out of nowhere. Normally there are specific leading indicators that we can look for that will tell us if major trouble is on the horizon. One of these leading indicators is the junk bond market. Right now, a closely watched high yield bond ETF known as JNK is sitting at 35.77. If it falls below 35, that will be a major red flag, and it will be the first time that it has done so since 2009. As you can see from this chart, JNK started crashing in June and July of 2008 – well before equities started crashing later that year. A crash in junk bonds almost always precedes a major crash in stocks, and so this is something that I am watching carefully.

And there is a reason why junk bonds are crashing. In 2015 we have seen the most corporate bond downgrades since the last financial crisis, and corporate debt defaults are absolutely skyrocketing. The following comes from a recent piece by Porter Stansberry…

So far this year, nearly 300 U.S. corporations have seen their bonds downgraded. That’s the most downgrades per year since the financial crisis of 2008-2009. The year isn’t over yet. Neither are the downgrades. More worrisome, the 12-month default rate on high-yield corporate debt has doubled this year. This suggests we are well into the next major debt-default cycle.

Another thing that I am watching closely is the price of oil.

A massive crash in the price of oil preceded the stock market crash of 2008, and over the past year we have seen another dramatic crash in the price of oil.

…click on the above link to read the rest of the article…

Tag Archives: commodity price collapse

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Economic collapse is already global

Post navigation

Latest Posts