Thoughts on Commodities...
I've thought about my prediction for the price of wheat, which is... we'll see Hard Red Winter Wheat at $10.00/bushel or higher by Labor Day. As they say in the NFL: "After further review..." I think it's entirely possible we could see this occur by Memorial Day, or even May Day. Here's why:
Floods in Australia, drought in Russia, and dry conditions in the U.S. Central Plains - plus the Federal Reserve's insane "Quantitative Easing II" policy (aka, money printing on steroids) all look like rocket fuel ready to explode the price of wheat higher.
The Fed's insanity has increased and will continue to increase the price of other commodities, such as crude oil, natural gas, gold and silver. I've been considering what factors could prevent this explosion in commodity prices. The only things I can think of are sharp cuts in government spending, and a Paul Volcker-style interest rate shock treatment. Watching what Ben Bernanke says - and more importantly, what he's done - it's pretty obvious that Ben is no Paul Volcker.
He seems hell-bent on printing money, while the Congress is hell-bent on spending it. Even with Republicans taking control of the House, I don't see politicians at the federal (and most state) levels having the gumption to seriously address government spending, entitlements, and most importantly... state and municipal pension plans, which have huge unfunded liabilities.
Not to mention Social Security and Medicare at the federal level.
Could we see some downward corrections in the short term? Absolutely.
Markets can - and usually do - act in irrational ways in the shorter term... but always trend according to the fundamentals in the long-term. Easy money, tighter supplies and crazy government spending are why I'm bullish on commodities for the foreseeable future.
Floods in Australia, drought in Russia, and dry conditions in the U.S. Central Plains - plus the Federal Reserve's insane "Quantitative Easing II" policy (aka, money printing on steroids) all look like rocket fuel ready to explode the price of wheat higher.
The Fed's insanity has increased and will continue to increase the price of other commodities, such as crude oil, natural gas, gold and silver. I've been considering what factors could prevent this explosion in commodity prices. The only things I can think of are sharp cuts in government spending, and a Paul Volcker-style interest rate shock treatment. Watching what Ben Bernanke says - and more importantly, what he's done - it's pretty obvious that Ben is no Paul Volcker.
He seems hell-bent on printing money, while the Congress is hell-bent on spending it. Even with Republicans taking control of the House, I don't see politicians at the federal (and most state) levels having the gumption to seriously address government spending, entitlements, and most importantly... state and municipal pension plans, which have huge unfunded liabilities.
Not to mention Social Security and Medicare at the federal level.
Could we see some downward corrections in the short term? Absolutely.
Markets can - and usually do - act in irrational ways in the shorter term... but always trend according to the fundamentals in the long-term. Easy money, tighter supplies and crazy government spending are why I'm bullish on commodities for the foreseeable future.
Labels: 401k karl denninger market ticker gold silver Federal Reserve
posted by Brian Ochsner | 10:02 PM
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