Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022
Quantum AI Tech Stocks Portfolio Current State - 4th Jan 2022
The Alibaba Stock Market - 4th Jan 2022
Will Gold & Silver Be Investment Outcasts in 2022 Again? - 4th Jan 2022
Stock Market Happy 2022 Entry - 4th Jan 2022
Complete paradigm shift will make Gold the generational trade - 4th Jan 2022
Corsair MP600 NVME2 1tb Drive Sudden DEATH Failures - Back Up NOW! - 4th Jan 2022
AI Tech Stocks Portfolio Updated Buying Levels and Zones Part 2 of 2 - 3rd Jan 2022
Stock Market Sentiment Speaks: 2022 Can Be Your Best Year Ever - 3rd Jan 2022
2020-22 - Soaring costs of the West's Pandemic failure - 3rd Jan 2022
AUTODESK (ADSK) - CAD - Metaverse Stock Analysis Investing for 2022 and Beyond - 2nd Jan 2022
Stock Market Sector Themes In Play For 2022 - 2nd Jan 2022
Excuse Me Mr Gold. What Year Is It? - 2nd Jan 2022
Stock Market Early 2022 Should Continue Melt-Up Trend In January / February - 2nd Jan 2022
UK Energy Crisis WARNING 2022 - How to Avoid Huge Increase in Gas and Electric Fuel Bills Right Now! - 1st Jan 2022
Why You Need A PR Expert For Your Financial Startup - 1st Jan 2022
TENCENT- Chinese High Risk GAMING Metaverse Stock Analysus for Investing 2022 and Beyond - 31st Dec 21
Gold Price Forecast 2022 - The Golden Year - 31st Dec 21
Will 2022 Be Better for Gold Than 2021? - 31st Dec 21
Gold Stocks – Wishing And Hoping (And Losing) - 31st Dec 21
Sheffield Christmas Market 2021 SANTAS GROTTO at Peace Gardens, City Centre Sights and Sounds - 31st Dec 21
Nvidia Leaves planet Earth - AI Tech Stocks Analysis - 30th Dec 21
Google (Alphabet) AI Tech Stocks Analysis - 30th Dec 21
Stock Market Santa Rally Challenge - 30th Dec 21
Sheffield Christmas Market Stalls, Sights and Sounds 2021 - 30th Dec 21
Investment Roadmap for 2022 - 30th Dec 21
2022 – The Year of (Gold) Inflation? - 30th Dec 21
Overvalued Stocks and Housing Perfect Storm for Gold - 30th Dec 21
My Most surprising Crypto call to date - 30th Dec 21
What is a Rehab Clinic and How It Is Beneficial for People? - 30th Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Ignore the Commodity Message at Your Own Peril

Commodities / CRB Index Aug 11, 2015 - 08:22 AM GMT

By: Michael_Pento

Commodities

The Thompson Reuters/Jefferies CRB Index (CRB) is back down to the panic lows of early 2009. For those who think the CRB Index says nothing about global growth...invest accordingly at your own peril.

If you believe this commodity crunch is all about some temporary oil supply glut, think again. There are 19 commodities that make up the CRB Index: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat. The value of the weighted average of these commodities is screaming one thing loudly: the rate of global growth is plummeting just as it was at the height of the Great Recession.



This is mainly because the synthetic economy of China, which once sucked up the natural resources of the globe in order to create the world's greatest fixed asset bubble in history, is now in freefall. And it is driving down the price of commodities as global growth grinds to a halt.

For those who think the U.S. and the rest of the world will be somehow immune to a China slowdown should note that foreign sales accounts for about one third of aggregate revenue for the S&P 500. For years China had been a huge growth market for multi-national companies. However, its recent rut is affecting both domestic and international companies around the globe that once provided China with natural resources during its empty-city building bonanza.

These companies and countries who benefitted from China's success are now reeling from its collapse. For example; U.S. multinationals such as Caterpillar, Ford, GM, Tesla and Freeport McMoRan have been negatively affected by the slowdown in China, just to name a few. And then we have Apple, whose stock is down 14% in the past few weeks because investors are now realizing Chinese consumers are not going to buy the volume of iWatches that have been predicted.

Strong demand from China had also been a boom to the Eurozone. Germany's auto industry, France and Italy's luxury goods, Dutch and Finnish chemicals, were all beneficiaries from China's huge growth. In fact, around 8% of Germany's exports go directly to China.

Sweden's Volvo is also reducing growth expectations in the region and issued a warning to investors that it would have to take a 650 million Swedish Crown ($75 million) charge for expected credit losses.

Expanding credit risks are now prompting some Western banks to rethink their exposure to China. Swiss-based UBS AG has stopped lending money to onshore clients in the communist nation.

But perhaps we see the largest effect of China in the Asia-Pacific region. China's three major trading partners Taiwan, Korea and Malaysia have seen a significant slowdown. For instance, Taiwan Q2 GDP growth of just 0.64% was the weakest in the past three years.

Australia is known as "China's quarry" and had enjoyed a decade-long boom selling iron ore. BHP Billiton and Rio Tinto have spent billions of dollars to double iron ore production over the past five years to meet China's insatiable demand. But now the good times appear to be over. Australia's July PMI dropped to a 5-month low of 50. While the Markit PMI plunged to 47.8, which was the worst in two years.

And to prove that China's slowdown spans the entire globe we can also evidence South America. Brazil is one of the ten largest markets in the world; producing steel, cement, petroleum, lubricants, propane gas, and a wide range of petrochemicals. Brazil was also a huge beneficiary of the Chinese real estate bubble.

But their government recently lowered the country's growth output from a small gain to a contraction of 1.5%. Standard & Poor's has downgraded Brazil's debt outlook to "negative" from "stable" a signal they are preparing to drop its credit rating, which now sits just one notch above junk. Brazil's currency, the real, is the weakest in 12 years against the dollar and the stock market is at a 6-year low.

And this slowdown in South America is also being felt worldwide. Agribusiness multi-national Bunge said its edible oil business was lower due to lower margins and volumes in Brazil. Owens Illinois, one of the world's biggest makers of glass bottles, reported a drop in volume stemming from a sharp drop in beer sales in Brazil. Goodyear Tire reported that sales in Latin America were down 20% compared to last year. Industrial gas manufacturer Praxair also suffered a sales decline year-over-year due to weaker industrial activity in Brazil and China. Whirlpool, which gets 16% of its revenues from Brazil, said sales were down 22 percent year-over-year. And finally, Caterpillar is getting crushed from the commodities rout and reported sales in Latin America were down 26%.

Given the huge global economic risk China and all its related trading partners present you would imagine the Fed would have this looming global recession firmly on their radar. Yet, just recently Atlanta Fed President Dennis Lockhart said he feels confident the economy is ready for a rate hike. After all, when has the Fed ever gotten any economic prediction wrong?

It's important to understand that in its history, the Fed has never undergone a "one and done" rate hiking campaign. In fact, the current median dot plot from the FOMC assumes a 1.5% Fed funds rate at the end of 2016. Therefore, after the first rate hike takes place, it would be natural to assume the Fed will hold true to its avowed trajectory, unless and until the U.S. economy falls into a recession.

However, with the U.S. economy barely growing at 1.5% for the first half of 2015, it won't take much more of a slowdown to bring growth into negative territory. Nevertheless, the Fed's intentions are to slowly begin hike rates in September. But central bankers don't realize the dystopias they have created: $200 trillion worth of debt disabled and asset bubble ridden economies that have become totally addicted to money printing in order to avoid a deflationary collapse. Once the artificial support is removed these bubbles begin to crater. Therefore, it shouldn't take long before the Fed inverts the yield curve and money supply growth gets chocked off. When that happens the economy will be in the middle of another 2008 variety collapse.

What is clear is that the CRB index is foreboding a clear message of the danger that lies ahead. Still, U.S. stock values are near record nominal highs and are outlandishly valued in relation to GDP. For those who claim that we are an island economy and don't care if the rest of the world falls apart, I'd like to know what will happen to U.S. multi-national companies' earnings as global trade evaporates and the Fed sends the U.S. dollar even higher.

According to FactSet, Q2 S&P 500 revenue growth is already at a negative 3.3% and earnings declined by 1.3%. Into this malaise we will have to add cascading global growth and a Fed that seems committed to commencing an interest rate hiking cycle. With the U.S. averages at such lofty levels it seems prudent to heed the warning declared by cratering commodity prices. If you doubt that conclusion just recall how wise it was not to ignore the same commodity message broadcast to investors beginning in the summer of 2008.

Michael Pento is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2015 Copyright Michael Pento - 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.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in