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Thursday, August 28, 2008

Either the Global Economy Is Heading Into Recession or Commodities Are About to Surge

That's my take-away from what I've been reading around the web recently -- a real conflict of opinion. You know my opinion -- I believe we are in a long-term commodity supercycle. But let me show you the stories I've found and you can decide for yourselves.

First, I mentioned a couple days ago that Pakistan – a nuclear-armed power with a strong Taliban insurgency – seems to be melting down. They’ve gone from tragedy to comedy …

Pakistan Sets Floor on Stock Prices to Stop Plunge

Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April.
Securities can trade within their daily limit of 5 percent ``but not below the floor-price level'' of yesterday's close.

Yes! That’s what I’ve always wanted – a stock market that can only go up. Don’t tell Bush about this solution or we may see it enacted on Wall Street.

In other news, Bloomberg really knows how to bury the lead in this next story. Check out what I’ve highlighted …

Financial Crisis Is Absent From Agendas of Parties, Candidates

The U.S. is facing the worst financial crisis since the Depression. You would never know that from the Democrats' platform in Denver or its Republican counterpart, or from listening to Barack Obama or John McCain.

XX Sean’ note – Splutter! Excuse me while I a do a spit-take, Bloomberg, but did you say the U.S. is facing the worst financial crisis since the Great Depression? For Pete’s sake, don’t tell Larry Kudlow, at least when he’s walking by an open window.

The rest of that Bloomberg story is heavy on politics and light on economics. Seriously, I want a Bloomberg story detailing why they agree (with the folks at Weiss Research, who have been saying it for months) that the US is facing the worst crisis since the Depression.

South and South-East Asia in the Midst of a Global Recession

Trade and financial linkages with the G-7 countries mean that Asia is unlikely to remain unscathed. Asian economies dependent on exports to the US and Europe and having large current account surpluses (China, Taiwan, Hong Kong, Singapore and others) will suffer from the G-7 recession.

XX Sean's note -- unless, of course, the G-7 doesn't slide into recession. I only mention that because America's Q2 growth was revised much higher to 3.3%.

Riders on the Storm …

"Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor's GSCI index. Only this time, the driver is supply cuts rather than increasing demand. Supply constraints are "coming more and more to the fore'' and that "will separate the performance of individual commodities," said Alan Heap, global commodity analyst at Citigroup Inc. in Sydney. "We're still looking for higher prices next year and in some cases the year after."

XX Sean’s note – the same piece quotes a contrary view …

"The whole cycle that began around the turn of this century ended," said Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, who returned 15 percent a year in the 1990s managing commodity investments. "Human ingenuity creates productivity, and the real price of almost everything that's extracted or manufactured goes down over time. That's the nature of human progress."

Lead Climbs to Three-Week High on Speculation of Rebound in China Demand Lead rose to the highest in three weeks in London on speculation demand improved in China, the world's largest consumer and producer of the metal.

Crude Oil Rises a Fourth Day as Tropical Storm May Threaten Gulf Platforms Crude oil and natural gas rose as Royal Dutch Shell Plc, BP Plc and ConocoPhillips evacuated drilling rigs before the arrival of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.

Australia's Mining Boom Drives Faster-Than-Forecast Business Investment Australian business investment rose more than twice as much as economists forecast in the second quarter as mining companies spent extra on machinery and equipment to meet demand from China.

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