In this analyst’s view, it is only a matter of time before the folly of Quantitative Easing becomes transparent to everyone. That time may be closer than most people think.
Here is a quote from an article entitled “Investors Hold Biggest Commodity Positions On Record; Viral Nonsense About Silver” written by Mike Shedlock.
“Hedge funds, pension funds and mutual funds dramatically ramped up their holdings in everything from oil and natural gas to silver, corn and wheat this year. In many cases, the number of contracts held for individual commodities now far exceeds the amount outstanding in mid-2008, the last time commodity markets were soaring to records and debate raged about whether excessive speculation was driving up prices”
In context of the three charts below, the commodities markets themselves – and the derivatives markets which hang off them; and the financial markets which will certainly be impacted by rising counterparty risk – may well be headed for a train smash.
Chart sources: http://investmenttools.com/futures/bdi_baltic_dry_index.htm and Decisionpoint.com
Many of the commodities futures to which Mr Shedlock refers are transported by sea from source country to destination country. Freight rates are trending down and were last at these levels in 2003 – 7 years ago, and five years before the Global Financial Crisis manifested. As I understand it, the largest variable cost item in the operation of a transport ship is fuel. Diesel prices will have been trending up alongside rising oil prices. The implication is that – if shipping companies have been forced to cut shipping prices in the face of rising diesel prices – actual shipping volumes have been falling even as the world’s “investors” have been loading up with the highest number/value of futures contracts in history.
The Point & Figure Chart below (adjusted to 3% X 3 Box reversal scale to factor out trading “noise”) seems to be bouncing down off the resistance offered by the falling red trend line.
In a previous article which I wrote a couple of weeks ago, I expressed my concerns that the price behaviour in the financial markets seemed to be out of step with the chart signals. My conclusion was that the reason for this was that the Federal Reserve’s policy of Quantitative Easing was serving to “force” markets to behave in an unnatural manner. The above scenario – should it manifest – will reveal the Federal Reserve Board’s policy of Quantitative Easing for what it is: A foolishly naïve attempt on the part of one organisation to overpower the forces of the market.
As a matter of common sense, the fact that humanity is a subset of nature implies that our behaviour is governed by the laws of nature. Logically, therefore, “market” behaviour will – as night follows day – follow the laws of nature. As a matter of common sense, when the irresistible force of nature overcomes the immovable object of human hubris, the result will be catastrophic.
There has been too much money created. A portion of that money has been invested in commodities. The actual volumes of commodities being shipped has been falling. “Investors” in commodities are going to get badly burned. That will have flow-on effects.
We are witnessing the makings of a train smash in the financial markets.
By Brian Bloom
Once in a while a book comes along that ‘nails’ the issues of our times. Brian Bloom has demonstrated an uncanny ability to predict world events, sometimes even before they are on the media radar. First he predicted the world financial crisis and its timing, then the increasing controversies regarding the causes of climate change. Next will be a dawning understanding that humanity must embrace radically new thought paradigms with regard to energy, or face extinction.
Via the medium of its lighthearted and entertaining storyline, Beyond Neanderthal highlights the common links between Christianity, Judaism, Islam, Hinduism and Taoism and draws attention to an alternative energy source known to the Ancients. How was this common knowledge lost? Have ego and testosterone befuddled our thought processes? The Muslim population is now approaching 1.6 billion across the planet. The clash of civilizations between Judeo-Christians and Muslims is heightening. Is there a peaceful way to diffuse this situation or will ego and testosterone get in the way of that too? Beyond Neanderthal makes the case for a possible way forward on both the energy and the clash of civilizations fronts.
Copies of Beyond Neanderthal may be ordered via www.beyondneanderthal.com or from Amazon
Copyright © 2010 Brian Bloom - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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