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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Joan Osland Graffius who wrote (64940)	3/4/2001 5:37:58 PM
From: russwinter	Read Replies (1) \| Respond to of 116753

I have a theory that there is a macroview split about how commodities will behave in the now quickly unfolding recession (or worse). The dumb money (specs) is betting that the slowdown will cause demand for commodities to fall off a cliff (a repeat of the Asia crisis). IMO they are fighting the last war. The smart money (commercials) has a different macro view, as do I. First on the demand side, the energy infrastructure needs serious attention, and I think this could keep resource demand at least steady. But the big story is that considerable supply side constraints are developing. The global resource economy has already been in what can only be described as a depression caused by not just the Asia slowdown, but also a lack of investment/neglect, misguided accelerated supply schemes from producers (hedging or selling for years in advance), an inflated US dollar, and post-Cold War dumping by Russia (they are running low and/or wising up). Capital has been severely misallocated into the TNT bubble to the extent that shortages are developing in many key commodities. In fact, bull markets have suddenly emerged in some (although disbelieved by the stock market). Certainly higher energy costs (as in the Phelps Dodge situation you mentioned), doesn't help as it forces all cost structures higher. In bad economic times, any business that is doing poorly operationally is a target for shutdowns and curtailments. Credit is going to get scarce and you better be profitable or you'll be closed off from the bank or equity window. This will happen throughout the economy, as well as the resource sector. It will signal the death knell for marginal production. But the problem is that there is no longer enough slack left for such supply disruptions. For more on this read John Hathaway: tocqueville.com