John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: The Ox who wrote (16854)	3/20/2015 11:54:27 AM
From: Hawkmoon	3 Recommendations Recommended By Davy Crockett isopatch roguedolphin Read Replies (3) of 33421

The "deflationary" spiral that everyone loves to talk about may not be anywhere near as severe as it appears due to the above combinations. Oil is more plentiful. Coal in in a glut. Iron ore production has soared. Agricultural supplies in corn, wheat and many other areas are also increasing, which has helped to keep their prices low. Now add in the strength of the dollar and we're in a unique period where inflation should be held in check for a while. Ox, I think the primary issue I may have with the above is that corporate profits for commodity producers require inflation. The suppression of the USD and QE induced inflation and higher profits. There's still a tremendous amount of debt (consumer and producer) that would seem to render the collapse in commodity prices to be an economic negative for the short, to intermediate, term. We've all heard about the heavily leveraged shale oil and gas plays. These folks have to produce at full blast in order to service the debt they acquired in order to expand their production. We can only assume the same is true with the miners, farmers, ranchers.. etc. What is primarily disturbing should be how sudden the commodity bubble has burst as the USD appreciated. The folks who borrowed dollars in non-US markets were effectively short the USD.. arbitraging into commodities as it declined over the past 7 years. But many of them are paying back that USD based debt with revenues generated in their local currency, which then must be converted into dollars to pay back the loan. The BIS says this amounts to at least $9 Trillion in US debt borrowed by non-US entities (mostly in the shadow banking system). Global demand is falling off... with expectations of a $2 Trillion fall in global GDP this year. Oil storage tanks are filling quickly.. China's stockpiles of commodity collateral have lost tremendous value, placing the loans they backed at dire risk.. There's just too much debt, and now the banks in Europe want depositors to pay the banks for holding their cash.. We've never been in this situation before.. So I'm of the belief that until demand can be restored and grow, there's a huge amount of risk.. zerohedge.com Hawk

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