Will Commodities Lead The Way?

I wanted to highlight two articles in the last two days’ Financial Times:

“Commodities Face ‘Seven Thin Years’”

“Baltic Dry [Index] Sees Biggest One-Day Rise in 25 years.”

The first article summarizes the views of Michael Farmer, founder of the Red Kite hedge fund.  He’s predicting a long period of low commodity prices and surplus warehouse stocks if we experience a sustained recession. The second piece details yesterday’s 15% jump in the Baltic Dry Index, a closely watched proxy for global trade via dry good shipping prices.  Some of the traders quoted in the article are noticing an uptick of commodities consumption, especially from China.

I’ve asserted for some time that any recovery in the economy will also induce a rise in most commodity prices.  This seems especially likely in the wake of sizable cuts in capital spending, ranging from BHP Billiton to ConocoPhillips.  These reductions should lead to supply constraints once demand normalizes.  Perhaps my imagination fails me but it is hard to see how the economy recovers while oil and base metals linger at multi-year lows.

One Response to “Will Commodities Lead The Way?”

  1. Jenna's Bush Says:

    if we experience a sustained recession

    Honey, we’ve entered a depression. Hold on!

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