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Blame the Fed for the Commodities Slump
Blame the Fed for the Commodities Slump
When we left you at the end of last week the world was falling apart.
As you know, the economy functions on electronic credit… not cold, hard cash. Without the banks pumping more credit into the system – by way of loans – it sags.
The Dow fell 163 points – or about 1% – on Friday.
More significant is the action in the gold market. At this morning’s price of $1,103 an ounce, gold is now trading $100 below what we thought was the “floor” under the price.
Why?
It could be that gold is signaling a global recession/depression. People tend to buy gold when they fear inflation. All they see today is a global deflationary slump.
The People’s Daily newspaper – the official organ of the Communist Party – tells us that Chinese electricity consumption is accelerating at the slowest rate in 30 years.
We all know China’s GDP figures are untrustworthy, but electrons don’t lie. They flow with the economy. And they’re now only increasing at a sluggish 1.3% a year – suggesting a big slowdown in the Chinese economy.
According to economists’ estimates compiled by Bloomberg – as opposed to the official spin from Beijing – China’s economy is growing at the slowest pace in 25 years.
A Pileup in Commodities
Meanwhile, on the commodities highway, there’s a huge pileup.
The crash in the oil market – which has taken the price per barrel of U.S. crude down 53% over the last 12 months – has left a massive slick.
A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low. Overall, commodities are at a 13-year low.
And the coal miners have slid on the cheap oil and gas.
In the March issue of our monthly publication, The Bill Bonner Letter, we explained why energy was so cheap. The Fed dropped the price of capital so low that it cost almost nothing to borrow.
…click on the above link to read the rest of the article…
JANET YELLEN IS A COWARD
JANET YELLEN IS A COWARD
Headline:
Yellen Is Loathe To Change Easy Money Policy
With her diminutive stature, dutch-boy haircut and puffy facial features Janet Yellen certainly does not look like a leader…more like a Brooklyn grandmother eager to tell you her special recipe for
chocolate chip cookies. In this case, unfortunately, her appearance does not deceive.
You might ask What Are The Traits of a Leader? Naturally, there are many but one trait, I can assure you, that does not define a leader = COWARDICE…and that dubious characteristic seems to describe Yellen’s recent tenure at The Federal Reserve.
It is a strong statement. I am aware. But, sadly, it is an assertion that is not too difficult to support.
Definition of Coward:
a person who lacks courage in facing danger, difficulty, opposition, pain, etc.
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First of all, Yellen has demonstrated no thought leadership at The Fed. She is simply “preaching the same gospel” as her nerdy predecessor Ben Bernanke. I suppose that since her “hero” [her words] decided that debt monetization and interest rate suppression were a sound strategy for the economy then she might as well continue with the same approach…despite its limitations. This copycat approach seems to suit her well and, of course, that is unfortunate. Her lack of rational action, with respect to interest rate policy, reminds me of those that just do not have the courage to think for themselves…always wanting to piggyback on other people’s ideas rather than to devise thoughts of their own. Anyway it seems change is not in Yellen’s DNA [as it would require original thought] while she is forcefully fighting a logical change of course on interest rate policy. Maybe because any type of change is painful [see definition of coward above] even if the change itself is relatively minor [as in a 25-75 basis point increase in interest rates]?
…click on the above link to read the rest of the article…
Never before has drilling for oil collapsed this far this fast.
Never before has drilling for oil collapsed this far this fast.
The word “boom” can never be thought of as a stand-alone concept that everyone loves, particularly governments because they get to rake in the big bucks. It’s always attached to its miserable twin that no one wants to see, the “bust.” They come invariably in cycles, one after the other. You can’t have one without the other. It’s just a question of time. And in the world of fracking, it’s no different.
The fracking-for-oil boom started in 2005, collapsed by 60% during the Financial Crisis when money ran out, but got going in earnest after the Fed had begun spreading its newly created money around the land. From the trough in May 2009 to its peak in October 2014, rigs drilling for oil soared from 180 to 1,609: multiplied by a factor of 9 in five years! And oil production soared, to reach 9.2 million barrels a day in January.
That’s what real booms look like. They’re fed by limitless low-cost money – exuberant investors that buy the riskiest IPOs, junk bonds, leveraged loans, and CLOs usually indirectly without knowing it via their bond funds, stock funds, leveraged-loan funds, by being part of a public pension system that invests in private equity firms that invest in the boom…. You get the idea.
That’s how much of the American shale-oil revolution was funded.
…click on the above link to read the rest of the article…
