IRON ORE COLLAPSES
This year, BOOM has written often about his expectation for falling commodity prices and the expectation of more falls. Recently, BOOM wrote “As China’s economy slows, it will tend to lower global commodity prices — especially in regard to the key commodity inputs into the Chinese economy.”
Since July 16th, the Iron Ore price has fallen from US $ 222 per tonne to just $ 104 per tonne. BOOM’s stance has been vindicated. That is a price CRASH and BOOM suspects that it will continue as the price of Iron Ore falls towards $ 50 per tonne.
The big iron ore producers will be affected significantly by the China slowdown. BHP, RIO and VALE stock prices in New York have already fallen by 26 %, 20 % and 30 % respectively since mid July. There is a term used in financial markets for this situation — “catch the falling knife”. It can be a dangerous game.
Palladium has also fallen — from its peak of $ 280 in early May to $ 180. As with Iron Ore, BOOM expects further falls will happen as the price heads back towards $ 100.
PRECIOUS METALS UNCERTAINTY
So let’s look at other weak commodity prices.
Precious metals prices have been weak over the last 12 months with buyers remaining unenthusiastic. Prices are again under pressure as far as BOOM can see. The US Dollar price of Gold (Continuous Contract) has fallen from $ 2,100 to the current price at $ 1,750. The US Dollar price of Silver (Continuous Contract) has fallen from $ 30 to just above $ 22. That is a 26 % fall annualized. Yikes. To BOOM’s jaundiced eye, these prices continue to look weak and unattractive.
Platinum has joined the party late. It peaked in February at $ 1,350 and is now at $ 930 — a fall of 30 % in 6 months. If that continues, investors will be looking at 60 % losses during 2021 if they bought at the peak mid February price levels. Yikes again.
The current price dynamics of these precious metals do not look strong to BOOM.
Meanwhile, the US Dollar Index has been trading in a strong sideways range over the last 12 months. US Dollar movement is clearly not the cause of these commodity and precious metals price falls.
The price of Corn doubled from August last year at US$ 350 to $ 700 in May this year. A staggering increase indeed and one of the reasons why some people were predicting a CPI inflation outbreak. But since the peak at $ 700 in May, the price has fallen to just $ 500 and it looks friendless at current levels. BOOM is not confident of buyer interest here.
The Agriculture ETF traded in New york with the code DBA has been trying to continue its stellar rise that began in July last year but has been struggling to rise above $ 19.50 fpr the last 5 months. The strong run looks like it is over. BOOM expects the price to fall from here.
OIL PRICES SHOULD JOIN THE PARTY
With key Chinese input commodity prices falling, precious metals prices falling and food input prices falling or reaching overhead resistance, BOOM is now looking for the price of Oil to weaken and begin a descent. West Texas Light Crude is currently trading around $ 72 per barrel (Continuous Contract). BOOM expects a price range of $ 40 – $ 50 by the end of the year. However, the future is unpredictable because anything unexpected can happen. Unexpected events can play havoc with expectations.
As long term readers will know, BOOM has held the view for some time that CPI inflation threats have been exaggerated. BOOM feels that any CPI inflation in the advanced economies this year (and probably all of next year) is going to be transitory. The Fed in Washington DC agrees.
TWENTY OBSERVATIONS ALL OVER THE NET
The UK-based rapper known as Zuby recently listed 20 observations on Twitter, and his list went viral. His real name is Nzube Olisaebuka Udezue. And his specialty seems to be commonsense.
BOOM especially likes this one — “Access to limitless information has not made the average person any wiser.”
20 Things I’ve Learned (Or Had Confirmed) About Humanity During The “Pandemic”
1. Most people would rather be in the majority, than be right.
2. At least 20% of the population has strong authoritarian tendencies, which will emerge under the right conditions.
3. Fear of death is only rivaled by the fear of social disapproval. The latter could be stronger.
4. Propaganda is just as effective in the modern day as it was 100 years ago. Access to limitless information has not made the average person any wiser.
5. Anything and everything can and will be politicized by the media, government, and those who trust them.
6. Many politicians and large corporations will gladly sacrifice human lives if it is conducive to their political and financial aspirations.
7. Most people believe the government acts in the best interests of the people. Even many who are vocal critics of the government.
8. Once they have made up their mind, most people would rather commit to being wrong, than admit they were wrong.
9. Humans can be trained and conditioned quickly and relatively easily to significantly alter their behaviors — for better or worse.
10. When sufficiently frightened, most people will not only accept authoritarianism, but demand it.
11. People who are dismissed as “conspiracy theorists” are often well researched and simply ahead of the mainstream narrative.
12. Most people value safety and security more than freedom and liberty, even if said “safety” is merely an illusion.
13. Hedonic adaptation occurs in both directions, and once inertia sets in, it is difficult to get people back to “normal.”
14. A significant % of people thoroughly enjoy being subjugated.
15. “The Science” has evolved into a secular pseudo-religion for millions of people in the West. This religion has little to do with science itself.
16. Most people care more about looking like they are doing the right thing, rather than actually doing the right thing.
17. Politics, the media, science, and the healthcare industries are all corrupt, to varying degrees. Scientists and doctors can be bought as easily as politicians.
18. If you make people comfortable enough, they will not revolt. You can keep millions docile as you strip their rights, by giving them money, food, and entertainment.
19. Modern people are overly complacent and lack vigilance when it comes to defending their own freedoms from government overreach.
20. It’s easier to fool a person than to convince them that they have been fooled.” UNQUOTE
In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research. BOOM does not offer investment advice.
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HOW MOST MONEY IS CREATED
BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)
THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.
How is Most New Money Created ?
LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).
From the Bank of England Quarterly Bulletin Q1 2014 —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.“
“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.
Quarterly Bulletins Index
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —
“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans“
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
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