Oil, copper and lumber are all telling us the exact same thing, and it isn’t good news for the global economy. When economic activity is booming, demand for commodities such as oil, copper and lumber goes up and that generally causes prices to rise. But when economic activity is slowing down, demand for such commodities falls and that generally causes prices to decline. In recent weeks, we have witnessed a decline in commodity prices unlike anything that we have witnessed in years, and many are concerned that this is a very clear indication that hard times are ahead for the global economy.
Let’s talk about oil first. The price of oil peaked in early October, but since that time it has fallen more than 25 percent, and the IEA is warning of “relatively weak” demand out of Asia and Europe…
The International Energy Agency said on Wednesday that while US demand for oil has been “very robust,” demand in Europe and developed Asian countries “continues to be relatively weak.” The IEA also warned of a “slowdown” in demand in developing nations such as India, Brazil and Argentina caused by high oil prices, weak currencies and deteriorating economic activity.
“The outlook for the global economy has deteriorated,” the IEA wrote.
Meanwhile, the price of copper has been declining for quite some time now. The price of copper also fell substantially just before the last recession, and many analysts are pointing out that “Dr. Copper” is now waving a red flag once again…
The message of weakening demand on the oil front was reinforced by the falling price of copper. The base metal is often referred to as “Dr. Copper” on its presumed ability to forecast the peaks and troughs of business cycles since it is used in different areas of the economy such as homes, factories and electricity generation. Copper has served as a leading indicator of both recessions and economic booms.
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Well, let's start with oil. Oil was overpriced by institutional buyers manipulating the market. That could only go on for a while before market basics of supply and demand brought an adjustment. As long as oil stays around $50.00 BBL, the market will be in equilibrium. But that won't happen, as the producers try to pump up prices, by restricting output. But there' a new producer in town that's ready and willing to take all the money that OPEC and others are willing to give up to raise prices. That producer is the USA. We have finally taken the wind out of the middle east sails. The more they don't pump, the more we will pump. It got way too high in the last several months, but the shale oil producers have caught up with demand, and inventories are overflowing. This is great for consumers. Nothing will defeat the terrorists quicker than taking away the financing from their middle eastern leaders. When we collapse their economies by selling our own oil, and not buying theirs, we will defeat middle eastern terrorism forever. The tribes can go back to fighting each other, and not fight with America. We used to want stability between the tribes, because instability and fighting would get in the way of the oil we needed from under their sand. But not any more. They can blow themselves all into martyrs and we'll still have our oil. Low oil prices are a GOOD thing. Anybody that proposes low oil prices are a bad thing, have a really, really bad ulterior motive for making the proposal.
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