Friday, July 1, 2011

Shilling on the Commodity Bubble

The best cure for high commodity prices is high commodity prices. And once they start to fall in earnest, there are a number of feedback loops that will drive the prices down fast.

Brazil, Canada, Australia will all suffer from the price drop.

Shilling: China Heading for a Hard Landing, Pt. 5
I’ve long believed that a hard landing in China would be preceded by a price collapse in copper and other industrial commodities. Copper prices peaked in February, and Barrick Gold Corp. (ABX)’s agreement on April 25 to acquire copper producer Equinox Minerals Ltd. to gain mineral resources outside its area of specialization is a classic sign of a peak.
As I noted earlier, there is so much leverage money floating around the world that regardless of how it’s managed -- by fundamental, momentum or technical strategies -- it tends to end up on the same side of the same trades at the same time. So, when one of these positions reverses, the effects spread rapidly as speculators bail out of their positions to reduce risk and preserve their capital. Keep in mind that the prices of the wide variety of commodities continue to move in lockstep.

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