A Broader Perspective

525
Tue, May 14, 2013 - 11:37am

Time is short but I do have something interesting for you to consider today.

Look, there's a lot going on that will make tomorrow's gold (and silver) "market" different from yesterday's. Regardless, I still believe it's useful to look at yesterday's market in order to forecast where we might be going based upon where we have been.

Today, we're going to look at the Continuous Commodity Index. https://en.wikipedia.org/wiki/Continuous_Commodity_Index. Here's a little background info from the Wiki page:

"The 17 components of the CCI are continuously rebalanced to maintain the equal weight of 5.88%. Since CCI components are equally weighted, they therefore distribute evenly into the major sectors: Energy 17.65%, Metals 23.53%, Softs 29.41% and Agriculture 29.41%. While other commodity indices may overweight in certain sectors (e.g. Energy), the CCI provides exposure to all four commodity subgroups."

So, first, let's look at a 25-year chart. Some of you may not even have been alive at the start of this chart. Personally, I was just graduating from college and chasing my then-sweetheart to San Francisco. (That's an interesting story but we'll save it for another day.) The point is: This chart covers a lot of ground and time. Therefore, it is to be respected.

Notice that for the first half of the chart, the action is sideways. From 1988 to 2002, the index fluctuated in roughly a 50-point range. Though there was some action in individual commodities from time to time, overall the sector was a real yawner. The sideways action actually goes back even further, to the early 1980s, when interest rates were raised to choke the money supply and curb inflation. So, for roughly 20 years, commodities in general sucked.

Then what happened? The debt-induced easy growth of the 90's finally popped in 2001 and it has been off to the races for commodities ever since. Sure there have been pauses and corrections along the way but there also been periods of blowoff, parabolic rallies, too. In the end, though, the trend has remained. Here, see for yourself:

So now let's look a little closer. On the five-year, weekly chart below, you can see where we currently stand. Of course, I've tried to draw the trendline as accurately as possible but it's impossible to show exactly where it currently lays. Needless to say though, we're pretty much right on top of it. So there are three things to consider:

  1. First and foremost, is this 11 year bull market in commodities over? Did commodities go sideways for 20 years only to have a bull market end after just 10 years? Look at it another way...Have the fundamental conditions which prompted this bull market changed? Are the Fed and other central banks about to embark on a Volcker-esque tightening spree?
  2. Could commodities in general (and, by extension, gold and silver) bounce and rally right here and right now, just like they did the on the last two occasions they encountered the main trendline in late 2008 and mid 2012?
  3. Are commodities about to over-shoot again, similar to the circled area on the monthly chart above? If so, could a final drop toward 500 or even 475 be in the cards? IF that were to happen, what would be the short-term impact on the price of gold? Of silver? Would you finally capitulate/panic and sell or will you rely on your answers to the questions posed in point #1 above?

OK, gotta stop there but that should give you plenty to think about and discuss for a while. Have a great day and let's hope that CIGA BoPolny/BoPelini/BoDiddley/BoJackson is proven correct.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  525 Comments

dropout
May 14, 2013 - 6:34pm

Too Many Ships in the World Merchant Fleet

The BDI is telling the truth, but for the wrong reason. That reason being an oversupply of ships.

World total cargo carrying vessels;

2005 - 50,000+ at end of 4QTR 2005

2013 - 57,400 as of September 2012

Bulk Carriers;

End of 2012 at 9,500 vessels a +73% growth in 5 years

Tankers; at a +29% growth rate

VLCC's (very large crude carriers) at 5,800 vessels

Smaller tankers below 10,000 (dwt) dead weight tonnes at 7,700 vessels

Container;

At 5,100 vessels with a +50% growth in 5 years

On February 21, 2011, Maersk placed an order for 10 Triple E class container ships with Daewoo. Scheduled for delivery between 2013 and 2015, they will entirely change the shipping industries understanding of size and efficiency. These new vessels will be the largest of any type on the water today at 1,300 feet long. It's 18,000 TEU (twenty foot containers) capacity is 16% greater than today's largest container vessel, the Emma Maersk at 11,000 TEU capacity.

The present over supply is particularly large and persistent and is having a brutal impact on freight earnings and profitability. Pressuring not only ship owners, but their bankers also.

This over supply badly skews the BDI as more ships chase cargoes, forcing down shipping rates to near the break even point, severely shrinking margins. Rendering the BDI almost useless as an economic indicator of world commerce. All the Baltic Dry Index shows now is the cheap level of shipping for the worlds shippers!

57Goldtop
May 14, 2013 - 6:37pm

Gold Dog

Received my Who-based contest reward today - thanks so much!

The timing is perfect, especially for the Hawks logos we discussed.

Good luck in round 2. I expect an entertaining series with good sportsmanship, as always.

foggyroad
May 14, 2013 - 6:44pm

NWO is not really Hidden

Ten minutes, make up your own mind.

The Complete Idiot's Guide to the New World Order
BugzySRSrocco
May 14, 2013 - 6:44pm

@SRSrocco

I do get the energy = money

Or Energy is the captured slave that can be put to work to produce things and make money.

So on an aggregate world view, I get it (Chris Martenson - all low hanging fruit has been picked etc - stuff is getting rarer and hence will cost more and the energy required to get it will cost more......). No more cheap slaves, no more relatively free building blocks of things.

Then I think of Germany: He has no natural resource yet thrives. He takes energy in, is incredibly efficient and produces something that can be sold with high margin. It is Germany's efficiency with energy and value added technology which allows him to excel on the world stage.

As we have spent many an evening (40 years) basking in our glory and in a reclining pose while fair maidens fed us grapes and wine; we got relatively fat and inefficient. Perhaps we will just be forced into the Gym; struggling and kicking all the way.

I think the real problem in this instant is competition. We are not really used to it. Folks in formally oppressed lifestyles are suddenly given a chance at self determination via capitalism and boy do they rejoice in it; grasping it with both hands and feet. Willing to study like demons and work their little puddings off.

Meanwhile, back at the entailment ranch: little Johnny (who is not so little) is on his third burger and forth 'full fat' soda of the day; can't think of anything new to save his life and insists that he ought to be paid $100,000+ just to attend some place of work.

So.. yes I get the next twenty years thing with energy. However, I do think there are even more immediate competitive issues at hand; overpriced housing being one of them. Free markets need a chance to price everything as an extension of efficient production and value.

With the meanness will come the leanness in a free market, the sooner these goons really break it the better.

And for non over l: The claim to be a scientist/engineer. Interesting use of the word "utility" the other day; financial engineer perhaps?

daveyboy
May 14, 2013 - 6:44pm

My god the current charts

My god the current charts looks extremely bearish for silver which only reinforces that the COT or rather gleaning anything from it is a waste of time in my opinion.

SilverFocker
May 14, 2013 - 6:46pm

Sometimes ya just gotta say WTF

Everything is discombobulated, Our money and current form of government is FUBAR, and most everything else is unexplainable.

Currently I am in a small war with our state IRS......They want some funny money for some back property taxes from 98-99....have not owned that property since 99, and pretty sure that taxes were paid to get clear deed at closing.....13+ years and they grab refund knowing that they are not entitled to it........many calls, and I find out that, regardless, the Statute has run out on such collection in this state, yet they do what they want cuz THEY ARE BROKE, which is something we will continue to see as the gooberment from all levels abuse the power in order to make up from their ineptness.

Like many, I am sick of Government. We are almost at the breaking point for most reasonable minded people, and I don't think it will take much more to get the people to push back, until then, I plan to enjoy things that I have put on hold these last few years in order to secure my little pot of PM's...........The manipulation, lies and deceit will continue until it can't.

BagOfGold
May 14, 2013 - 6:52pm

OMG!...The FunHouse has evolved...

& our nemesis' transformation...has completed!...This is a most unfortunate tale...Our hero & heroine were taken for quite a ride...& hopefully their noses will not be snipped to spite their faces!...Will they be able to escape?...What's next?...Stay tuned for a further update!!!...

Bag Of Gold
foggyroad
May 14, 2013 - 7:06pm

Great Man

“If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen.”
Samuel Adams

ancientmoneydaveyboy
May 14, 2013 - 7:16pm

@Daveyboy . . . silver bearish? . . .

"My god the current charts looks extremely bearish for silver which only reinforces that the COT or rather gleaning anything from it is a waste of time in my opinion."

--------------------------------------------------------------------------------------------------

I tend to think you are a messenger of MOPE.

The charts are all painted to give certain cues. The TBTF bankers are deathly afraid of a phyzz run too big for their britches in silver.

Everything is being done to make silver look like the poor investment of the lot, when reality kicks sand in that fat face.

Silver is the Achilles heel of the TBTF bankers and the CBs that back them. CBs and BBs got gold, but they got no silver to speak of.

Nothing is as it seems, and that, my friend, is by design.

Hagarth
May 14, 2013 - 7:17pm

This is sick in the head...

Gambling on high-risk synthetic credit derivatives is not the only area of interest at JPMorgan’s Chief Investment Office (CIO) – the division that has thus far admitted to losing $6.2 billion in the London Whale debacle. According to Exhibit 81 released by the U.S. Senate’s Permanent Subcommittee on Investigations, Ina Drew, the head of the CIO, was also overseeing the investment of funds in the firm’s Bank Owned Life Insurance (BOLI) and Corporate Owned Life Insurance (COLI) plans – a scheme enshrined by the U.S. Congress in 2006 that allows too-big-to-fail banks as well as many other corporations to reap huge tax benefits by taking out life insurance policies on workers – even low wage workers – and naming the corporation the beneficiary of the death benefit.

According to the exhibit, Drew was tasked with “Maximization of tax-advantaged investments of life insurance premiums” for the BOLI/COLI plans. According to a report in the Wall Street Journal in 2009, JPMorgan had $12 billion in BOLI, noting that a JPMorgan spokesperson had confirmed the figure. Other insurance industry experts put the total for both BOLI and COLI at JPMorgan significantly higher.

Most Americans are unaware that for at least 25 years big business and banks have been secretly taking out millions of life insurance policies on their workers and naming the corporation the beneficiary of the death benefit without the knowledge of the employee. The individual policies are frequently in the hundreds of thousands of dollars and sometimes millions. To keep track of employees who have left the company, deaths are routinely tracked through the Social Security Administration. The policies became known as “dead peasant” or “janitor” policies because corporations took out life insurance on millions of low-wage workers, including janitors, without their knowledge or consent.

https://wallstreetonparade.com/2013/03/the-other-thing-jpmorgan-was-doin...

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