zinc demand continues to grow worldwide as does our reliance on foreign imports of it. we have very low inventories of metals like zinc and lead, in some cases only a week or two worth of supply. as the world slows down and prices for zinc and lead plummet to historic low prices, production slows down as it is not profitable. then one day demand comes roaring back but we discover no one has bothered to stockpile any and then the delicate balance of supply and demand is upset and prices start to rise. of course you can't just print more zinc or lead like greenspan can print money. you have to explore for mines, you have to go through a bunch of regulatory red tape, get permits, post bonds, get financing, start up the new mines, etc. and that takes time. of course as the prices skyrocket in the meantime people think to themselves i don't want to be stuck without any zinc or lead again because it is painful to pay these high prices, so people tend to overstock to compensate. this is how the prices go higher and higher until enough production comes on stream to rectify the shortages that exist.
of course this doesn't even account for outside events like tensions or war which could cause us to rebuild our stocks or interrupt the supply from somewhere like china (a major zinc exporter). what if we go sticking our nose where it doesn't belong and get into a scuffle or war with china over taiwan? this happened in the 70's didn't it? we sided with israel and opec countries didn't like that so they said screw you it's time for an oil embargo. their embargo only cut world production by about 7% but oil exploded. just recently our demand for oil continued unabated but opec only cut production about 3%, yet look what happened to the price of oil.
when prices trend down for 20 years or so people become complacent. they don't bother to stockpile anything because they come to assume that there will forever be cheap readily available supply. in fact they don't want to pay the cost of storing stuff they don't need, and they hold off on purchases as much as possible because they expect they will get even cheaper prices in the future. all the while demand continues to grow while no one is paying much attention. look at electricity. the pc and internet revolution has spurred demand for electricity but no one ever thought to build more generation. or if they did think to build it no one wanted it in their back yard. or environmental policies made it more trouble than it was worth to invest money in that area. then we wake up one day and there's not even enough frigging electricity!! we can put a man on the moon and we can grow babies in test tubes, we can make artificial hearts, and we can clone but we can't even make enough frigging electricity?!?!
well let me tell you, mr harmond. it's not just electricity and oil that was ignored as demand continued unabated. agriculture and mining has been on the wane and our reliance on outside sources continues to grow. of course we have had an amazing amount of capital flow into our markets which has kept our currency strong and put pressure on foreign producers to dump their cheap goods onto the market.
obviously a falling dollar will make a huge difference to the price of commodities. i see a blow-off top in the dollar coming, which will force commodity prices even lower. this along with a myriad of other factors such as deteriorating worldwide economic conditions, higher energy prices, and historically low prices will force many commodity producers out of business or cause them to vastly cut back on production. the falling prices will also cause dumping on world markets. weak economic conditions will cause more inflationary credit creation which will eventually be to hard to ignore, and this will drive the demand for hard assets as well.
about the time you and your new economy boys make fun of me and taunt me mercilessly as commodity prices go down the toilet like your stocks, i know that a worldwide depression of epic proportions will be priced in and we will see a rebound. except there won't be enough to go around, and something will tip the delicate balance and you will see prices exploding for many commodities. |
