Warren himself acquired a record-setting 128 million ounces of silver back in the late 1990s… which he later sold at a profit in the early 2000s.
But to listen to him talk about precious metals these days, he’s always negative.
Buffett often quips that if you took the world’s entire supply of gold and melted it together, it would form a cube of about 68 feet (~21 meters) per side and be worth around $9 trillion.
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With that same $9 trillion, you could buy every share of Apple, Disney, Google, Microsoft, JP Morgan, Exxon Mobil, all the farmland in the United States, all the developable land in Manhattan, and still have more than a trillion dollars left over.
This is Buffett’s central argument: gold doesn’t produce anything. So it’s much better to invest in a productive asset like a business, farmland, etc.
Sure, I’d rather own a profitable, productive asset than a pile of metal.
But Buffett is completely wrong to compare gold to productive assets… they’re apples and oranges.
Gold isn’t an ‘investment’. It’s an insurance policy against paper currencies will lose value over time. So a MUCH better comparison for gold is CASH.
Read the entire article
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Showing posts with label Commodities. Show all posts
Showing posts with label Commodities. Show all posts
October 8, 2019
May 25, 2018
Petroyuan Is Only The Beginning, Pop Goes The Metals Market
When Hong Kong Exchanges and Clearing (HKEX) bought the London Metals exchange in 2012 all the speculation was about the effects on gold trading. The primary reason for buying the LME was to obtain its warehouses and ensure a free flow of metals to points east.
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words... Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
Read the entire article
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words... Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
Read the entire article
April 12, 2018
It All Begins And Ends With China: "Is The Global Reflation Cycle Ending?"
Last night, China released factory inflation numbers (i.e., PPI), which slowed for a fifth straight month in Mar. ’18… marking the slowest Y/Y growth rate since Oct. ’16 (Exhibit 1). Similarly, the Mar. ’18 consumer price index (“CPI”) retreated from the four-year high set in Feb. ’18 (Exhibit 1).
Interestingly, we note that the Mar. ‘18 +2.1% Y/Y growth in China’s PPI missed Consensus’ expectation of +2.6% Y/Y growth, while the Mar. ’18 +3.1% Y/Y growth in China’s PPI also missed Consensus’ forecast of +3.3% Y/Y growth.
WHAT’S DRIVING COMMODITY-PRICE DEFLATION IN CHINA? As we’ve argued before, and as noted in Exhibit 2 below, it appears the swift collapse in China’s credit impulse (i.e., a fancy way of saying China is issuing less debt as a % of GDP) is driving a correction in China’s commodity consumption. Why does this matter? Well, in our view, steel price strength in 2017 was due to China’s steel exports falling 33.4Mmt, or the second largest decline ever, trailing only that seen in 2009 (Exhibit 5) – China produces roughly half of world’s steel, meaning when they export less, global prices rally. While the driver in 2009 was the global financial crisis (“GFC”), the driver in 2017 was a record credit stimulus in China (i.e., $4.9tn in new credit issued) driving domestic demand, and thus boosting domestic Chinese steel prices. So, in general, while in most years China’s steel prices lag the rest of the world, in 2017 they were much higher; this, in turn, pushed mills in China to ship more domestically vs. to other countries, and thus drove up global steel prices –given China was >50% of global steel production in 2017, this had a big impact on global steel prices. However, this dynamic is now in reverse (Exhibit 6), which we believe forebodes risk to global steel prices.
CONCLUSION. When analyzing China’s Mar. ’18 PPI internals, looking to see what drove such weakness in China’s factory inflation numbers (Exhibit 7), it becomes clear that price deflation across the raw material and basic industrial complex was among the key drivers. Consequently, given China’s PPI is an excellent leading indicator into how China’s industrial economy is fairing, and also considering China’s Mar. ’18 Caixin Manufacturing PMI missed Consensus’ estimate (i.e., 51.0 vs. Consensus’ 51.7), we believe the 2018 “China slowdown” meme is firmly intact (we remind our readers that China consumes the bulk of the worlds commodity-metal output). Consequently, while China’s Mar. ’18 excavator sales growth rate of +78.9% Y/Y got a lot of people excited this weekend (we received a number of inbound emails asking our opinion on this surprisingly strong number), China’s loader sales fell -50.3% Y/Y in Mar. ’18 (i.e., the weakest growth in any single month since 4Q15’s global growth scare) and China’s Mar. ’18 crane sales growth fell to -12.8% Y/Y, or the weakest rate of growth in 17 months.
Read the entire article
Interestingly, we note that the Mar. ‘18 +2.1% Y/Y growth in China’s PPI missed Consensus’ expectation of +2.6% Y/Y growth, while the Mar. ’18 +3.1% Y/Y growth in China’s PPI also missed Consensus’ forecast of +3.3% Y/Y growth.
WHAT’S DRIVING COMMODITY-PRICE DEFLATION IN CHINA? As we’ve argued before, and as noted in Exhibit 2 below, it appears the swift collapse in China’s credit impulse (i.e., a fancy way of saying China is issuing less debt as a % of GDP) is driving a correction in China’s commodity consumption. Why does this matter? Well, in our view, steel price strength in 2017 was due to China’s steel exports falling 33.4Mmt, or the second largest decline ever, trailing only that seen in 2009 (Exhibit 5) – China produces roughly half of world’s steel, meaning when they export less, global prices rally. While the driver in 2009 was the global financial crisis (“GFC”), the driver in 2017 was a record credit stimulus in China (i.e., $4.9tn in new credit issued) driving domestic demand, and thus boosting domestic Chinese steel prices. So, in general, while in most years China’s steel prices lag the rest of the world, in 2017 they were much higher; this, in turn, pushed mills in China to ship more domestically vs. to other countries, and thus drove up global steel prices –given China was >50% of global steel production in 2017, this had a big impact on global steel prices. However, this dynamic is now in reverse (Exhibit 6), which we believe forebodes risk to global steel prices.
CONCLUSION. When analyzing China’s Mar. ’18 PPI internals, looking to see what drove such weakness in China’s factory inflation numbers (Exhibit 7), it becomes clear that price deflation across the raw material and basic industrial complex was among the key drivers. Consequently, given China’s PPI is an excellent leading indicator into how China’s industrial economy is fairing, and also considering China’s Mar. ’18 Caixin Manufacturing PMI missed Consensus’ estimate (i.e., 51.0 vs. Consensus’ 51.7), we believe the 2018 “China slowdown” meme is firmly intact (we remind our readers that China consumes the bulk of the worlds commodity-metal output). Consequently, while China’s Mar. ’18 excavator sales growth rate of +78.9% Y/Y got a lot of people excited this weekend (we received a number of inbound emails asking our opinion on this surprisingly strong number), China’s loader sales fell -50.3% Y/Y in Mar. ’18 (i.e., the weakest growth in any single month since 4Q15’s global growth scare) and China’s Mar. ’18 crane sales growth fell to -12.8% Y/Y, or the weakest rate of growth in 17 months.
Read the entire article
March 23, 2018
"Sea Of Red" - China Stocks, Commodities Crash As Trade Wars Escalate
Following the US imposition of 25% duties on China produce worth at least $50 billion including items in aerospace, information and communication technology and machinery, China has announced plans of reciprocal tariffs on $3 billion of U.S. imports.
China plans to add 15% tariffs on U.S. steel pipes, fruit, wine and other products, the Ministry of Commerce says in a statement, and also plans to add 25% tariffs on pork and recycled aluminum.
Bloomberg provides some more details on the list of goods China will be targetting...
1) fresh fruit, dried fruit and nuts
2) wine
3) denatured ethyl alcohol
4) American ginseng
5) seamless steel pipes
6) pork and pork products
7) aluminum scrap
Who knew America exports ginseng to China?
In the statement, China urged the U.S. to resolve the trade dispute via dialogue.
The reactions are ugly.
Read the entire article
China plans to add 15% tariffs on U.S. steel pipes, fruit, wine and other products, the Ministry of Commerce says in a statement, and also plans to add 25% tariffs on pork and recycled aluminum.
Bloomberg provides some more details on the list of goods China will be targetting...
1) fresh fruit, dried fruit and nuts
2) wine
3) denatured ethyl alcohol
4) American ginseng
5) seamless steel pipes
6) pork and pork products
7) aluminum scrap
Who knew America exports ginseng to China?
In the statement, China urged the U.S. to resolve the trade dispute via dialogue.
The reactions are ugly.
Read the entire article
October 31, 2016
GMO and Monsanto-Bayer: Global Agribusiness’ Wild Game of Monopoly Endangers Food Diversity
Agriculture’s biggest deal ever will leave farmers and consumers paying more for less, and could accelerate a potentially catastrophic decline in the diversity of what we plant and eat.
A wave of Big Ag mergers is threatening to entrench a food system that reduces nature’s edible abundance to a handful of plants on your plate.
Monsanto, the world’s largest seed company, has been purchased by Bayer, the German pharma and agrochemical multinational. Bayer paid $66 billion — the biggest cash buy-out in history.
The stakes could not be higher. The deal threatens to put the genetic erosion of the world’s food supply on steroids, just as serious doubts are emerging about the genetically modified organism (GMO) “revolution” that began 20 years ago and the claim that US-style industrial farming will “feed the world.” The risks of monoculture are well documented: more than one million people died of starvation and disease during the Irish Potato Famine (also known as the Great Famine), between 1845 and 1852. It took 168 years to find out what went wrong.
The loss of crop diversity in the United States is already staggering: an estimated 93% of vegetable seed varieties have gone extinct in the last century.
The merger will also lead to higher seed prices. Since Monsanto’s commercial introduction of its GM seeds in 1996, the cost of seeds has skyrocketed. Farmers now pay 325% more for soybean seeds than in 1996, and 259% more for corn. The price of genetically modified cotton has soared 516%.
Read the entire article
A wave of Big Ag mergers is threatening to entrench a food system that reduces nature’s edible abundance to a handful of plants on your plate.
Monsanto, the world’s largest seed company, has been purchased by Bayer, the German pharma and agrochemical multinational. Bayer paid $66 billion — the biggest cash buy-out in history.
The stakes could not be higher. The deal threatens to put the genetic erosion of the world’s food supply on steroids, just as serious doubts are emerging about the genetically modified organism (GMO) “revolution” that began 20 years ago and the claim that US-style industrial farming will “feed the world.” The risks of monoculture are well documented: more than one million people died of starvation and disease during the Irish Potato Famine (also known as the Great Famine), between 1845 and 1852. It took 168 years to find out what went wrong.
The loss of crop diversity in the United States is already staggering: an estimated 93% of vegetable seed varieties have gone extinct in the last century.
The merger will also lead to higher seed prices. Since Monsanto’s commercial introduction of its GM seeds in 1996, the cost of seeds has skyrocketed. Farmers now pay 325% more for soybean seeds than in 1996, and 259% more for corn. The price of genetically modified cotton has soared 516%.
Read the entire article
August 31, 2016
Food Deflation Driving "Least Profitable Year In 20 Years" As Farmers And Grocers Get Crushed
Sinking food prices, while good for the consumer, is devastating for almost everyone else in the supply chain from the farmer all the way to the grocers. Farmers suffer as their key input cost, labor, is actually increasing in many states from the rash of minimum wage hikes around the country while fuel seems to move wildly with any number of daily rumors about production freezes in the middle east. Meanwhile, grocers suffer as already thin margins get compressed even further as existing inventories get marked down.
Food prices have come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from a weak Chinese economy and a strong U.S. dollar. This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand. In fact, the USDA recently provided a $20mm "bailout" to cheese producers and reports have surfaced that milk producers have been dumping excess milk on fields.
With the base inputs of corn, wheat and soybeans all tanking, food deflation has been pervasive with almost every commodity down substantially YoY.
Proteins, which represent nearly 20% of the typical consumer's shopping basket, are trending flat to down 8% so far in 2016.
Farmers are among the hardest hit when food prices decline. In fact, we recently wrote about how sinking ag commodity prices in the Midwest were resulting in substantial declines in ag land prices and farmer incomes which then translate into an increase in farmer credit defaults (see "Farmland Bubble Bursts As Ag Credit Conditions Crumble"). Within that post we noted that farmland prices in Chicago's 7th District (IL, IN, IA, MI, WI) declined in 2014 and 2015 after only dropping in 4 other years since 1965.
Read the entire article
Food prices have come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from a weak Chinese economy and a strong U.S. dollar. This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand. In fact, the USDA recently provided a $20mm "bailout" to cheese producers and reports have surfaced that milk producers have been dumping excess milk on fields.
With the base inputs of corn, wheat and soybeans all tanking, food deflation has been pervasive with almost every commodity down substantially YoY.
Proteins, which represent nearly 20% of the typical consumer's shopping basket, are trending flat to down 8% so far in 2016.
Farmers are among the hardest hit when food prices decline. In fact, we recently wrote about how sinking ag commodity prices in the Midwest were resulting in substantial declines in ag land prices and farmer incomes which then translate into an increase in farmer credit defaults (see "Farmland Bubble Bursts As Ag Credit Conditions Crumble"). Within that post we noted that farmland prices in Chicago's 7th District (IL, IN, IA, MI, WI) declined in 2014 and 2015 after only dropping in 4 other years since 1965.
Read the entire article
April 26, 2016
"The Men Behind The Curtain Are Being Revealed" – CEO Says Real-World Pricing To Return To Gold & Silver Markets
Astute observers of financial markets, especially in the precious metals sector, have long argued that small concentrations of major market players have been manipulating asset prices. Last week those suspicions were confirmed when Deutsche Bank, one of the world’s leading financial institutions, not only admitted to regulators that they have been involved in the racket, but that they were prepared to turn over records implicating many of their cohorts in a global scheme to suppress prices.
In his latest interview with SGT Report, straight-shooting Callinex Mines CEO Max Porterfield explains that now that the men behind the curtain are being revealed, asset prices in precious metals, base metals and other commodities will return to more natural pricing mechanisms based on core supply and demand fundamentals.
They are being revealed, most certainly… whether anybody actually takes a fall for it is a whole ‘nother discussion in its own right.. It’s good someone is being held accountable in some form or fashion and at least we understand what we’re dealing with.
… The real world pricing is being seen not only in the precious metals space, but it’s being played out in other base metals as well… Underlying all this manipulation is really the supply demand fundamentals for all these commodities…
Read the entire article
In his latest interview with SGT Report, straight-shooting Callinex Mines CEO Max Porterfield explains that now that the men behind the curtain are being revealed, asset prices in precious metals, base metals and other commodities will return to more natural pricing mechanisms based on core supply and demand fundamentals.
They are being revealed, most certainly… whether anybody actually takes a fall for it is a whole ‘nother discussion in its own right.. It’s good someone is being held accountable in some form or fashion and at least we understand what we’re dealing with.
… The real world pricing is being seen not only in the precious metals space, but it’s being played out in other base metals as well… Underlying all this manipulation is really the supply demand fundamentals for all these commodities…
Read the entire article
March 8, 2016
"The Commodity Rally Is Not Sustainable" - Goldman Is Now Waiting For The Next Big Drop
As noted yesterday morning, "Goldman does it again" when just hours after Goldman said the "bearish cash for iron ore was intact," the commodity recorded its biggest surge in history crushing anyone short, and soaring 20% across the globe. That however has not dented Goldman's conviction that the commodity rally is overdone (we actually agree with Goldman for once) and just hours ago the head of commodities at Goldman Jeffrey Currie doubled down on Goldman's bearish commodities call saying "market views on reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.
Indeed the fundamentals - especially in oil - remain dire, with land storage especially in PADD2/Cushing about to overflow as we have been showing for the past 2 months, and yet the sentiment has shifted the most in years. As Currie puts it: "Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating as it did last spring."
It is this premature excitement that according to Goldman, will be catalyst that leads to the next leg lower in commodities, as the price surge gone far too soon and long before the much needed rebalancing and excess production was taken out:
Last year commodity prices were driven lower by deflation, divergence and deleveraging which were reinforcing through a negative feedback loop. Deflationary pressures from excess commodity supply reinforced divergence in US growth and a stronger US dollar which in turn exacerbated EM funding costs and the need for EMs to de-lever though lower investment and hence commodity demand. While we believe that these dynamics likely ran their course last year resulting in signs of rebalancing, the force of their reversal has created a new trend in market positioning that could run further. However, the longer they run, the more destabilizing they become to the nascent rebalancing they are trying to price.
Read the entire article
Indeed the fundamentals - especially in oil - remain dire, with land storage especially in PADD2/Cushing about to overflow as we have been showing for the past 2 months, and yet the sentiment has shifted the most in years. As Currie puts it: "Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating as it did last spring."
It is this premature excitement that according to Goldman, will be catalyst that leads to the next leg lower in commodities, as the price surge gone far too soon and long before the much needed rebalancing and excess production was taken out:
Last year commodity prices were driven lower by deflation, divergence and deleveraging which were reinforcing through a negative feedback loop. Deflationary pressures from excess commodity supply reinforced divergence in US growth and a stronger US dollar which in turn exacerbated EM funding costs and the need for EMs to de-lever though lower investment and hence commodity demand. While we believe that these dynamics likely ran their course last year resulting in signs of rebalancing, the force of their reversal has created a new trend in market positioning that could run further. However, the longer they run, the more destabilizing they become to the nascent rebalancing they are trying to price.
Read the entire article
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