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THE "COMMODITY SUPER CYCLE"

January 30, 2006

A must read! Full of great charts.

http://www.financialsense.com/fsu/editorials/dorsch/2006/0130.html

Here's a small tidbit...

Until recently, the “Commodity Super Cycle” has been led by base metals such as copper, aluminum, and zinc, precious metals such as gold, silver, and platinum, and higher energy prices led by crude oil and natural gas. Recently however, commodity traders have doubled sugar prices to 24-year highs, and are moving into coffee and soybeans. Other raw materials such as iron ore rose 72% in 2005. Although China is a big exporter of steel, fears of a global supply glut could disappear rapidly, if global steel makers begin a pattern of consolidation, following in the footsteps of the gold mining industry over the past few years.

But how did the Reuter’s CRB index reach record levels in the first place? Well consider the Chinese and Indian economies, which also account for one third of the world’s population, and the super easy money policies pursued by the big-3 central banks, the Bank of Japan, the European Central Bank, and the Federal Reserve. Both ingredients, when mixed together, make an explosive cocktail that has lifted commodity indexes into the stratosphere.

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The Japanese ruling elite are devaluing their way to prosperity, by flooding the Tokyo money markets with 32 trillion to 35 trillion yen above the liquidity requirements of local banks. The enormous supply of excess yen pushed Japan’s 3-month deposit rate below zero percent for most of 2004. With borrowing costs at zero percent or less, Japanese and foreign hedge fund traders have found the cheapest source of capital to leverage speculative positions in global commodities.