Less than two years after the housing market collapsed, the U.S. economy is threatened by a new bubble in asset prices. This time, four billowing balloons are hovering: two commodities — gold and oil — stocks, and government bonds.

Don’t be fooled into thinking that last week’s 5% drop in the S&P, and the recent sell-off in oil, remotely makes them fairly valued, let alone bargains. Equities and commodities, as well as Treasuries, which actually rallied as stocks dropped, still have a long way to fall. The reason: They’ve already seen huge run-ups that put their prices far above their historic averages, and far above the levels justified by fundamentals.

Source/Full Story: money.cnn.com

Mexico has taken out a $1bn insurance policy against oil prices falling next year, a clear signal that commodities producers remain wary about the threat of a double-dip recession.

“We want this as an insurance policy,” said Agustín Carstens, Mexico’s finance minister. “If we don’t collect any resources from this transaction, it’s OK with us.” That would mean the oil price had remained above $57 a barrel, he added.

Mr Carstens suggested he was not expecting prices to fall that low, but added: “More than anything, it’s a hedge against a really bad outcome.”

Source/Full Story: FT.com

Equities, commodities and emerging market currencies suffered hefty losses on Monday as risk averse investors shifted to the perceived safety of the dollar, the yen and government bonds.

“Risk aversion has resurfaced as market participants take profits on riskier exposures amid the World Bank’s downward revision of its global growth forecast for 2009,” said Samarjit Shankar, director of global strategy at Bank of New York Mellon.

“Renewed concerns about the extent of the ongoing global recession and the sustainability of the green shoots of recovery have combined with the instability unfolding in Iran and North Korea to lend an air of pessimism to investor sentiment.”

The World Bank said it expected the global economy to shrink by 2.9 per cent this year, compared with a previous estimate of a 1.7 per cent contraction.

The cautious mood among investors was intensified by uncertainty ahead of this week’s Federal Reserve policy meeting.

Source/Full Story: FT.com

China’s State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan’s TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

“China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years.”

“The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources,” he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year’s commodity crash to restock cheaply, there is clearly more behind the move. “They are definitely buying metals to diversify out of US Treasuries and dollar holdings,” said Jim Lennon, head of commodities at Macquarie Bank.

Source/Full Story@:  Telegraph

Source: STLtoday.com

The combined value of the various financial bailout efforts to date is approaching $8 trillion. As these rescue initiatives move ahead on a fast track, the government statistics on another group in far more dire need of a bailout have gone virtually unnoticed. The Food and Nutrition Service of the Department of Agriculture reports that for at least the last three years, one in nine Americans has experienced “food insecurity” — that bureaucratic term that describes the condition of those who lack access to enough food on a regular, sustained basis.

In 2007, that meant 13 million households (36.2 million people) went hungry at some time during the year. Of these, 4.7 million households experienced severe food insecurity, often skipping meals or otherwise reducing the amount of food they ate. Children who had to endure severe food shortage numbered 691,000 — an increase of more than 60 percent from 2006. Households at greatest risk for food insecurity typically are headed by a single woman, a Hispanic or African-American, or by those with incomes below the federal poverty line.

In Missouri, nearly 13 percent of households experienced food insecurity from 2005 to 2007, including nearly 5 percent characterized as “very low.” These dismal statistics put Missouri in 10th place among all states for the highest rate of food insecurity overall and in eighth place for very low food insecurity. The situation represents an increase in food insecurity of more than 27 percent since the 1996-1998 survey, when only one in 10 households lacked access to food on a regular basis.

The figures for 2008 are expected to rise even more as unemployment increases and the recession deepens. Other factors have exacerbated the situation. The cost of food is higher than it has been in 17 years, rising 8.7 percent in the first half of 2008, more than 50 percent faster than in 2007. Rising prices are expected to continue into the new year.

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Technorati Tags: food insecurity, commodities

Source: Bloomberg.com

Most commodities declined yesterday because of falling demand for raw materials, with corn, soybeans and wheat dropping the most allowed by the Chicago Board of Trade in a single day. The Reuters/Jefferies CRB Index of 19 commodities slid as much as 4 percent.

Brent crude oil for February settlement fell as much as $1.07, or 2.5 percent, to $41.84 a barrel on London’s ICE Futures Europe exchange. It was at $42.92 a barrel at 10:16 a.m. London time.

U.S. crude-oil and fuel inventories probably rose last week as refineries reduced operating rates and the recession curbed consumption, a Bloomberg News survey of analysts showed.

Crude-oil stockpiles probably increased 2.25 million barrels in the week ended Jan. 9 from 325.4 million the week before, according to the median of eight analyst estimates before an Energy Department report this week.

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Technorati Tags: commodities, corn, soybeans, wheat, oil

Source: Bloomberg.com

Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven.

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week.

“The only possible explanation for gold’s gains are the geopolitical tension in Gaza and in India and Pakistan,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery climbed $23.20, or 2.7 percent, to $871.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Dec. 17. The metal is up 6.4 percent this month.

Silver futures for March delivery gained 18 cents, or 1.7 percent, to $10.53 an ounce. The metal is still down 29 percent this year.

Indian Foreign Minister Pranab Mukherjee stepped up diplomatic pressure on Pakistan to act against those behind last month’s Mumbai terrorist attacks.

India is the world’s biggest buyer of gold, accounting for more than 20 percent of purchases last year, according to the World Gold Council.

Some investors buy gold as a haven when military tensions threaten to disrupt financial markets. Crude oil rallied as much as 7.2 percent.

The Middle East was responsible for 31 percent of global oil production in 2007, according to BP Plc, which publishes its annual Statistical Review of World Energy each June.

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Technorati Tags: Gold, oil, commodities

Source: Telegraph

“It is sheer unmitigated fear: even institutions are looking for mattresses to put their money until the end of the year,” said Marc Ostwald, a bond expert at Insinger de Beaufort.

The rush for the safety of US Treasury debt is playing havoc with America’s $7 trillion “repo” market used to manage liquidity. Fund managers are hoovering up any safe asset they can find because they do not know what the world will look like in January when normal business picks up again. Three-month bills fell to minus 0.01pc on Tuesday, implying that funds are paying the US government for protection.

“You know the US Treasury will give you your money back, but your bank might not be there,” said Paul Ashworth, US economist for Capital Economics.

The gold markets have also been in turmoil. Traders say it has become extremely hard to buy the physical metal in the form of bars or coins. The market has moved into “backwardation” for the first time, meaning that futures contracts are now priced more cheaply than actual bullion prices.

It appears that hedge funds in distress are being forced to cash in profits on gold futures to cover losses elsewhere or to meet redemptions by clients. But smaller retail investors – and perhaps some big players – are buying bullion in record volumes to store in vaults.

The latest data from the World Gold Council shows that demand for coins, bars, and exchange traded funds (ETFs) doubled in the third quarter to 382 tonnes compared to a year earlier. This matches the entire set of gold auctions by the Bank of England between 1999 and 2002.

Peter Hambro, head Peter Hambro Gold, said the data reflects a “remarkable” shift in the structure of the market. The rush to safety reflects a mix of fears about the fragility of world finance and concerns that the move towards zero interest rates could set off an inflationary surge further down the road, and possibly call into question the worth of some paper currencies.

The near paralysis in the “repo” markets may prove to be no more than pre-Christmas jitters as banks square their books.

However, there are some signs that extreme monetary stimulus by the US Federal Reserve and other banks is starting to have unintended consequences.

The Bank of Japan is it is reluctant to cut its rates to zero again because of the damage this causes to the money markets, which serve as a key lubricant of the credit system. The US is now starting to face the same dilemma.

Technorati Tags: gold shortage, commodities

Source: NYTimes.com

Food Prices Rising

For more than a year, food manufacturers have been shaving package sizes and raising prices, declaring that they had little choice because of unprecedented increases in the cost of raw ingredients like corn, soybeans and wheat.

Prices are dropping for commodities like this corn being harvested near Auburn, Ill., but economists predict the cost of food for consumers will continue to increase through next year.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants.

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.

The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.

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Technorati Tags: commodities, corn, soybeans , wheat

Source: Telegraph

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

…

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

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Source: FT.com

Commodities were hammered for the second day running with oil prices falling below $90 a barrel as investors rushed to unwind trading positions in crude amid worries about AIG, the US insurer and the sponsor of a large commodity index.

West Texas Intermediate prices tumbled more than $5 to an intra-day low of $90.51, firming $4.56 lower at $91.15, leading a broad sell-off in base metals and agriculture commodities.

The DJ-AIG commodity index is the second most popular in the asset class, with pension funds and other large investors investing some $30bn in derivatives that track the benchmark. The index fell 2.7 per cent to its lowest level since September 2007.

Bankers said while AIG had not provided all that exposure to the index through derivatives for clients, it was a counterparty for a “significant amount”.

Bankers said investors had moved about $10bn since Monday – more than 5 per cent of the funds tracking commodity indices – because of concerns over counterparty risk from several institutions.

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Source: FT.com

Sovereign wealth funds have invested almost $20bn in commodities futures, according to fresh data from US regulators. It confirms for the first time the presence of state-owned vehicles in the commodities market.

The Commodity Futures Trading Commission, the regulator of US commodity markets, said in a report SWFs accounted for about nine per cent of the $200bn invested in commodities indices at the end of June.

Bankers have in the past said the secretive SWFs were investing in commodities – with some buying gold to hedge against the US dollar and others, particularly the Middle East-based ones, investing in agriculture.

But until now, there was no official confirmation of their widely rumoured presence.

SWFs’ investment in the commodities market attracts attention because of fears about control of strategic assets.

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Source: FT.com

Corn prices on Tuesday fell to the lowest level this year after the US Department of Agriculture revealed that farmers were able to boost the country’s corn crop in spite of the damage wreaked earlier in the season by the worst flooding in 15 years.

The USDA forecast the 2008-09 season would see the second largest corn crop on record, triggering further selling of agriculture commodities futures. Corn prices for September delivery dropped about 1 per cent to $4.84¼ a bushel, the lowest since January.

The sharp fall in prices for corn – down 36.5 per cent from a record high of $7.65 in June during the peak of the flooding – and also for wheat and soyabean, are likely to alleviate concerns about global food inflation.

Nevertheless, food prices are still 44 per cent higher than a year ago and almost double the level of 2006, according to the UN’s Food and Agriculture Organisation.

“Nearly ideal growing season weather across much of the Corn Belt since late June has supported crop development and increased yield prospects,” the USDA said in its August report, which is closely watched as it provides the first forecast for the corn and soyabean’s autumn harvest.

Via: FT.com

Global inflation fears deepened as Chinese steelmakers agreed to a record increase in annual iron ore prices in a move likely to boost the cost of cars, machinery and other products.

Chinese millers agreed to pay Anglo-Australian miner Rio Tinto up to 96.5 per cent more for their ore supplies this year, the largest ever annual increase and well above the 9.5 per cent increase paid last year.

The rise suggests that demand for commodities from emerging economies remains strong, in spite of the US slowdown, fuelling fears that global inflation will continue to rise. The rise – an average 85 per cent – surpasses the record increase of 71.5 per cent agreed in 2005, when the commodities boom gathered pace.

“Commodity-led inflation risks appear to be growing,” said Tobias Levkovich, Citi chief strategist.

Sam Walsh, chief executive of Rio’s iron ore unit, told the Financial Times on Monday that the agreement indicated ongoing robust demand for commodities. “Economic growth in China, India and the Middle East continues to be outstandingly strong.”

Analysts said steelmakers are likely to pass the rise in costs on to customers, such as construction companies and car makers.

Via: Bloomberg.com

Corn topped $7 a bushel for the first time, while soybeans and wheat rallied, as Midwest rains and flooding damaged the U.S. crop, threatening to reduce supplies at a time of record demand.

More than 4 million acres of corn were left to be planted as of June 1, before Midwest fields received up to 12 inches (30 centimeters) of rain in the past week, government data show. Some fields in Iowa, the biggest corn-growing state, may receive 6 inches of rain in the next 24 hours, said Mike Tannura, a meteorologist for T-Storm Weather in Chicago.

“It’s clearly a panic situation,” said Gary Rhea, president of Risk Management Partners in Des Moines, Iowa. “The problem is the market just doesn’t know the extent of the acreage and yield losses from the rains.”

The U.S. Department of Agriculture cut its corn-crop forecast yesterday to 11.735 billion bushels, down 10 percent from last year’s record. Before next year’s harvest, inventories will plunge to a 13-year low. The price of corn, used mostly to make livestock feed and ethanol, jumped 78 percent in the past year and touched records in each of the past five sessions.

Corn futures for July delivery rose 30 cents, or 4.5 percent, to a record $7.0325 a bushel on the Chicago Board of Trade. The 30-cent gain was the maximum permitted by the exchange.