Soros Says Commodity ‘Bubble’ Still in ‘Growth Phase’

Soros:

Billionaire George Soros said the boom in commodities is still in a "growth phase” after prices for oil, wheat and gold rose to records.

"You have a generalized commodity bubble due to commodities having become an asset class that institutions use to an increasing extent,” Soros said today at an event sponsored by the Centre for European Policy Studies in Brussels. "On top of that you have specific factors that create the relative shortage of oil and, now, also food.”

Commodities are in their seventh year of gains, with oil rising to a record $115.54 a barrel today as the dollar plunged to an all-time low against the euro. Rice has more than doubled in a year, while corn has advanced 68 percent and wheat 92 percent. Investments in commodities rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said April 7 . . .

Soros’s comments echo those of Jim Rogers, a fellow founder of the Quantum Hedge Fund in the 1970s. Rogers is best known for being a commodities bull since the late 1990s, before the market started to rally in 2001. His Rogers International Commodity Index has more than quadrupled since its start in 1998.

Note: I do not know what Bloomberg did differently, but the audio now works on the iMac.

Click for improved Windows video
Soros_commodity_video

 

Source:
Soros Says Commodity `Bubble’ Still in `Growth Phase’
Saijel Kishan and John Rega
Bloomberg April 17  2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLSge4iZvG3g&

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  1. Mind commented on Apr 18

    While the working man is being forced to cut back:

    http://www.nytimes.com/2008/04/18/business/18hours.html?ex=1209182400&en=f067f2f87d5b74f9&ei=5070

    “Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.

    The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.”

  2. rickrude commented on Apr 18

    Not again,,,, this will become another socialist blame thread with….
    Soros and Rogers are making too much money,
    immoral hedge funds,,its not fair, etc, etc.

    The socialists here must realise that
    if they are losing out on the commodity
    bull market, they can’t blame soros or
    Rogers or other hedge funds that invested capital accordingly.

  3. blam commented on Apr 18

    I have noticed an uptick in the number of neo-con asshats posting here lately. Unfortunate.

    “You have a generalized commodity bubble due to commodities having become an asset class that institutions use to an increasing extent,”

    From a market perspective, one has to question the usefullness of a system that allows financial companies to establish monopoly positions in commodities. Not exactly efficient but a predictable result of the US monetary and fiscal policies.

  4. Ken H. commented on Apr 18

    Did the woman my wife knows that has to have two to three jobs to make enough to put gas in her car,feed her children miss the boom too Rick?? Did she miss the housing boom too?? This is not about socialism or capitalism, this is about greed.

    There is nothing wrong with capitalism but these pigmen are crooks and have done more to erode the fabric of this country than 9/11.

    Commodity boom? more like bubble. It’s going to be no different than housing when the music stops.

    If they are such capitalists, then why do they wan a bailout? They want to capitalize on the profits and socialize the losses. Right? What a couple studs they are, Hoo Rah!

  5. cinefoz commented on Apr 18

    I hate to say, ‘It’s different this time’, but in this case, it is different this time.

    In the not too distant past, rising commodity prices were shocking, but affordable. In fact, they were almost a perfect storm because they promoted conservation and exploration while allowing people like me to make money. The model worked.

    Today, high and still rising commodity prices are sucking the life out of the economy. The top end of the price level is being set by parasitical commodity speculators who sit in a daisy chain and sell contracts back and forth among themselves. Occasionally, I assume, new stupid money arrives to help out.

    Current price levels are unsustainable. The fall of the dollar provides an easy explanation for lazy reporters, ineffectual government regulators, and dumb money looking for a home. Remember geopolitical instability as the catch-all explanation a couple of years ago? Why don’t reporters use the actual term … ‘speculative premium’?

    The end result is the rape of the world by a few wealthy speculators.

    The last two bubbles were built by incompetent central banking. With hope, the current FOMC will add a new page to the new book of unconventional banking and try to pop a building commodity bubble before it becomes a third badge of dishonor.

    Perhaps, with the proper incentives, all this free cash can be directed towards actual investment that provides jobs, as opposed to quick buck schemes.

  6. John Wellman commented on Apr 18

    We won’t get fooled again!

    Who knew The Who knew? Bubble Behavior keeps reappearing even though many people know better!

  7. Shane commented on Apr 18

    Does no one understand what is really going on? Is everyone really that dumb?

    What we have in commodities is not a bubble yet, commodity prices are keeping up with the massive amounts of money that has been injected into our system. Take a look at the CRB since 2001, almost a straight linear growth- that is a reflection of monetary inflation. Only recently is it going into a boom phase. Before this is over we will have $200 oil, $3000 gold, $100 silver, and $20-30 wheat . . . that is if the government actually decides to stop creating money (or we could go like Zimbabwe). . . either through deficit spending, lower interest rates, or bail-outs of institutions.

    We have a classic case of more money chasing same goods. There has been good growth in commodities, but good portion is monetary creation.

    People scream about high prices, you want low prices then tell the Fed to RAISE interest rates, let the country go into recession, and stop deficit spending.

    I don’t see this happening as people will blame “greedy” speculators . . . idiots . . . its not speculators it the fed and congress.

    You want lower prices, turn off the spigot!

    If you don’t think that’s going to happen then buy gold and silver and hold on tight.

  8. Kevdock commented on Apr 18

    For: BLAM

    WAAAAAAAAAA

    You liberals can’t win arguements.

    Read Dennis Gartman today. Obama’s chances are slim and none.

  9. wunsacon commented on Apr 18

    >> The socialists here must realise that
    if they are losing out on the commodity
    bull market,

    Socialist here. Long in commodities (only). Pardon me if I don’t starve personally but display sympathy for and complain on behalf of increasingly squeezed fellow citizens.

  10. Aaron commented on Apr 18

    Beware of the billionaire talking his own book. Chances are that Soros wants to unload some of his massive commodities positions and would like to sell to the general public on the highs.

    People like Soros anre’t revealing info as a public service. Think, what would Gordon Gekko do?

  11. Charlie commented on Apr 18

    Blam,

    You sound like a snob. “one has to question” “not exactly effecient”- you sound like a dork college professor.

  12. Grimm commented on Apr 18

    Excellent point Aaron.

  13. Ross commented on Apr 18

    Hate to burst your bubble but there isn’t a generalized commodities bubble.

    People tend to lump all commodities into one generalized catagory like they do with THE stock market. Certain headline commodities that cross the screen on CNBC are NOT the commodities market.

    Consider cash prices. Here are some year over year prices.

    Burlap This year .43 last year .45

    Cotton .66/ .46

    Barley 7.25/ 4.30

    Beef Carcuss 134/ 152

    Eggs 1.08/ .79

    Edible tallow .44/ .27

    There are commodities that don’t trade freely in the U.S. like rape seed (canola), palm oil, raw rubber and copra. Most have similar price increases or decreases.

    To say that hedge funds are the evil masters of rising commodities prices is just plain naive. But if you believe it to be true, wait for hedge funds to implode because of a severe drop in edible tallow prices.

    Let’s not forget other industrial metals like antimony, indium, vanadium, moly, and rhodium. FLASH! there may be a bubble in rhodium. The price per ounce has gone from $380 5 years ago to $9,000 today. Evil hedge funds!!!

    So, I am long sugar, cotton, palladium and beef critters because in my opinion, prices are under fair value. I see GOOGLE up 12% today. Evil hedge funds!!

  14. Grimm commented on Apr 18

    Excellent point Ross.

  15. blin commented on Apr 18

    About 4 years ago, Soros correctly predicted that the policies of the Fed at the time would destroy the value of the dollar by about 1/3 within 3-4 years. He was bang on with that one.

    Currently, he has pedicted that the equities markets will rally for 6 – 12 weeks before they move lower. (Prediction made about 2 weks ago)

    We’ll see about that one.

    Although I do agree that Soros does try say things to manipulate the markets to his advantage, he sometimes just tells it like it is because he is aware that sometimes everybody could profit from extreme market conditions.

    I actually think the commodity boom will last for a few more years, although we will probably have very deep corrections.

  16. Grimm commented on Apr 18

    Very good point Blin, you are right too.

  17. Ken H. commented on Apr 18

    Point well taken Ross, I do miss speak when I lump commodities but you had better be careful as Soros and his ilk we figure out how to lighten your wallet from your comments. Their scourge move from one bubble to another leaving a waste land behind them. Blogs were calling oil and metals as the next bubble 2-3 years ago you know.

    Shane, I can’t help you if you believe fundamentals support these oil prices. Just like housing, someone’s going to be holding the bag regardless of the price they flip contracts to.

  18. justme commented on Apr 18

    Screw the left/right, socialist/capitalist us/them mentality. While people bicker about -details-, both parties continue to screw us. The parties continue to keep the masses bickering so they can benefit those who pay them off. Does anyone here think DC cares about the people?

    Ross, being long in Beef is probably a very wise move (wish I could, don’t know how to though as I am not that savvy) The price of feed has skyrocketed and many places are dumping their livestock right now to reduce their herds. In 6 to 8 months, expect prices to jump as supply dwindles.

  19. Grimm commented on Apr 18

    Just Me,

    I love you like a brother, you are right.

    While we dupes take are talking points from cable TV and argue about the dumbest issues, (can anyone remember what we argued about in January?) we are getting it right in the ass.

    But what do we do?

  20. cat commented on Apr 18

    Soros is the Chivas Irons of trading – he outtrades us, steals our women and beats us at philosophizing. Big bad George? Quit mewling.

  21. Steve in TN commented on Apr 18

    Cinefoz,
    I agree that speculators are the cause for a portion of the big price rise in commodities, BUT, the tremendous increase in demand from the emerging economies, in my mind is the predominant reason – and this factor will continue to dominate price rises.
    By the way, when most posters here were blasting you for your bullish market opinions, I though you were spot on, similar to my rationale that the market was greatly oversold. Keep up the great work and don’t be afraid to post on that subject.

  22. Pete commented on Apr 18

    There is no shortage of food or commodities. Just prices making food unaffordable. There are pools of dollars on deposit in central banks around the world (thanks to Greenspan)and now the central banks are dumping them, that is why the dollar is collapsing, pretty soon, the central banks will stop, the dollar will begin to rally and inflation will drop, and interst rates will rise-dramitcally.

  23. bill in IL commented on Apr 18

    Yeah, I noticed that rhodium spike also. Wasn’t there another one during the last gulf war? Is the military using this stuff?

    As for palladium, less use for catalytic converters, but more use for new generation of laptop batteries. Check out toshiba’s invention. They are even changing airline rules to allow a few ml of methanol to power those gadgets.

    Ross, I would appreciate any info on increased demand for Pd.

  24. Steve in TN commented on Apr 18

    I remember one month before the ’87 crash Soros was on the cover of Fortune saying the bull market was healthy and will still be going up.
    Soros was correct from Jan. ’88 on, except for the minor hiccup of a 35% drop in the DJIA that past October.

  25. Grimm commented on Apr 18

    Excellent point Steve in TN. Anybody can make a guess about the future since it is impossible to predict

  26. Shane commented on Apr 18

    Ken . . . I didn’t say fundamentals. A boom in commodities is going on, some of it is real growth, like housing 2001, some of it is monetary related. The exact line between what is real growth and monetary inflation related is real hazy right now.

    The housing market was already in a growth phase in 2001 most of those gains were justified. Housing gains after 2003 were mostly monetary/credit inflation related. The huge upswing in prices was not fundamental-i.e. the real value of the asset wasn’t worth more, the value of the dollar compared to that asset dropped.

    Most of the gains in commodities up to this point has been real growth. Only recently, since the Fed started dropping interest rates, have things started to transition from real growth to monetary/credit inflation growth.

    Why is it that people only see monetary inflation when commodity prices rise? Why don’t they see it in the stock market or in housing? They cheer, and cheer it, without realizing they aren’t building anymore wealth, the value of their currency is going down.

    There is real growth in oil . . . from China and India. That real growth coupled with our stupid monetary inflation policies is fueling high prices.

    It’s not necessarily that the asset is worth anymore, its the fact that our monetary currency is in the toilet.

    Oil in gold since 2001 hasn’t moved too much, it’s up a some reflecting real growth. However, oil in dollar, skyrocketed.

  27. Ross commented on Apr 18

    Justme,
    I sold some black beef critters because of negative margins owing to feed and fuel. I repalced my cows with an etf, COW which is an ipath based on lean cattle and lean hogs futures. Symbol is COW and it sometimes trades by appointment but you can safely buy a few thousand at a time with limit orders.

    bill in Il.

    Pd is a strange metal. It holds 600x mass in hydrogen. Ford lost a billion with bad futures positions when Russia didn’t deliver after their crisis in 1998-2000. Pd went for $200 to $1,000. I tried to short some then but nobody would lend the metal.

    You can buy physical Pd in coin or 1 oz ingots and there are 2 N. American producers that are public.

    Pd is catching hold of the jewelry mkt in China now that it can be cast. Cat converters, batteries and dental seem to be growing. Go to North American Palladium’s web site. They have a good chart on the world wide market.

  28. tabasco commented on Apr 18

    “I remember one month before the ’87 crash Soros was on the cover of Fortune saying the bull market was healthy and will still be going up.
    Soros was correct from Jan. ’88 on, except for the minor hiccup of a 35% drop in the DJIA that past October.”

    In other words, Soros was correct. The bull market lasted from 1982 to 2000. The 1987 crash was a correction, not an end to a bull market.

  29. noone commented on Apr 18

    Notice how George Soros has had his name changed to “Biliionaire George” Soros? Can’t we have one article in which he is mentioned that the word billionaire does not precede his name?

  30. Ken H. commented on Apr 18

    Shane,

    Nicely articulated. sorry mine is not in kind. No time. trying to type a bit here and there while working.

    I agree with you to a point, probably just a difference in magnitude. I just do not believe your argument carries 116 dollar oil. Regardless of dollar weakness and global demand. Maybe 80-85. These “speculators” are hedging against inflation and volatility in the markets. They have a ravenous appetite and shoot why not. This country allows bail outs. Once they find that they are not getting the returns they expected and profits are not sustainable, there will be a crash.

    Anyhow, I do believe there is some speculation and I do believe it is a bubble that is not sustainable. and..i still beleive the likes of Soros are responsible. Just the fact that oil as an asset class has been sold off to cover is a prime example which raises prices.

  31. Simon commented on Apr 18

    Wow! the great man speaks! I wonder if anyone is listening…

    Thanks George for a clear concise explanation and a simple solution.

    Its too bad the accent and modist demeanor will be too much for many to get past.

    Ho many more Billions will you need to make to prove you know what you are talking about?

  32. Shane commented on Apr 18

    Ken,
    You make some good points. I agree, I think oil is a little overvalued right now. I’d say a good 15-20% haircut is needed, around 95 is prob. appropriate. I warned back in Feb. about an impending correction in commodities. Frankly, I’m a little surprised they haven’t dropped more than they did . . . or maybe they are holding out. My basic technical analysis was calling for silver to drop to ~15, we got to ~16.50. A little steam got taken out of commodities, but honestly I personally wanted a bigger correction. I know emotions aren’t good for trading but . . .

    The big problem with commodities is that it is the red-headed-step-child, to a very large extent nobody wants it. People who make money off commodities are evil speculators while people who jumped in at Naz 98, housing 04 were great investors.

    That mindset is slowly changing, but at this point I just don’t see the government bailing out silver/gold/oil speculators/investors/banks. If anything the history of gold/silver/oil has shown that the government will do anything and everything in its power to oppress the price. Hunt bro. 1980, massive short selling by banks since then, gold confiscation 1930s.

    Commodities are not seen as an investment vehicle, even though in my opinion it is and should be . . .its the basis of life, of what everything else revolves around. If buying a company such as Microsoft, which is an integral part of today’s society, is considering investing, then buying corn/wheat/etc, should be considered investing as they are much more important than Microsoft.

    I think there is some speculation, but speculation is 100% healthy, and there is ALWAYS speculation in commodities, stock markets, etc. People rail against evil speculators, they actually perform a very vital function in free markets, it’s part of the price discovery mechanism of free markets.

    The part that is unhealthy and that causes bubbles, malinvestment, and the load of crap we are in right now is MASSIVE GOVERNMENT intervention to artificially create a floor or ceiling on prices or to prop up a brand . . . ala corn/ethanol. The other part that is unhealthy is the MASSIVE amount of CREDIT expansion given to speculators.

    Markets are self-regulating, if a lot of speculators have skin in the game and they get burned it prevents massive bubbles. When the government interferes and produces artificially low interest rates, absolves individuals and companies of risk, that is when massive bubbles are created.

    It’s not the market or speculators themselves, it’s the people who give free money to speculators (cough, cough the Fed), who are the problem.

  33. rickrude commented on Apr 18

    Did the woman my wife knows that has to have two to three jobs to make enough to put gas in her car,feed her children miss the boom too Rick?? Did she miss the housing boom too?? This is not about socialism or capitalism, this is about greed.

    There is nothing wrong with capitalism but these pigmen are crooks and have done more to erode the fabric of this country than 9/11.

    Commodity boom? more like bubble. It’s going to be no different than housing when the music stops.

    If they are such capitalists, then why do they wan a bailout? They want to capitalize on the profits and socialize the losses. Right? What a couple studs they are, Hoo Rah!

    Posted by: Ken H. | Apr 18, 2008 8:16:58 AM

    Ken H, let me ask you, a prudent squirrel always puts away some nuts for a rainy day.
    Alot of the energy stocks have gone up like
    1,000 to 5,000 % since the bottom in oil back in 1999. Surely if the woman were
    aware of the macro – economic trends ofpeak oil she would have invested her life savings in the energy stocks back in 1999.
    when they were paying out 6% in dividends,
    she’d have a nest egg right now.

    If you’d have borrowed $10k against your house or job to invest in , say chevron, Devon, Suncor, CNQ, etc, that $10k would be like over $100k. That 10K would have represented a wise investment in the energy sector, prudent move I’d say….

    There have been many mom and pop investors in the energy sector since 1999… i would not call that a bubble,,, it is was an underinvested sector born out of the over investment in the tech bubble.

    The houseing bubbble is a bubble, no doubt, I never recommended investing in one.

    Some of the integrated energy companies were paying out 6% back in 1999, while rates were low. One could have got a loan to invest in the sector with the dividend paying the interest on the loan.

    There are some poor folks that have no choice, no chance to invest. I did not ridicule them.

    Ken, you should really be mad at Greenspan,
    and the financial wizards on wall street that created the mortgage bubble.

  34. Just4Laughs commented on Apr 19

    Though commodity prices do have a speculative component, I believe it is 10-20% of the total. The rest is real price appreciation due to excess demand. China’s, India’s, Russia’s, Brazil’s middle class is growing by over 15%/year in wealth and 30%/year in size. Don’t you thing these neo-plutans would like to have a fairer share in the world’s resources. Why should Americans suck 30% of the world’s resources and only have 5% of the population? Get used to it: It will only get worse!!!

  35. Ken H. commented on Apr 19

    Shane, I pretty much agree with all that except i beleive there needs to be some regulation in how hedge funds operate. These turds need to have some skin in the game. Think JP is borrowing from the Fed window and hedging oil futures for profit. Absolutely! Guys like Soros use other people’s money to get rich and have no skin in the game. Barry thinks Soros compares to MJ, no way! didn’t you see Trading Places with eddie Murphy Barry?

    This leads to both Rick’s and your point that this was created by easy credit, from relator to CDO investor. Totally agree and I am mad a Greenspan. To think I am smarter than him on economic issues is insane so i’m not going to pretend I am. I’m not tossing a barb at you Rick because I am pissed at him. He was hawking APR’s in 2005? So the question is why? Did China have us by the balls that bad? They did threaten to crash our dollar in 2003 and they did have the power to do so. Is this an attempt to lessen that threat?

  36. rickrude commented on Apr 19

    hey guys, the people we should be mad at
    are Greenspan, the financial wizards on wallstreet that that created the debt bubble
    with Greenspan’s help.

    Would you blame anyone, even a billionaire for not wanting to pay taxes to the US government. A governmentt
    that will waste the money on War, and corporate welfare, and not help out the little guy through universal healthcare, social security, higher minimum wage, etc ??

    If I were a billionaire, I would hate to pay taxes to the US government, instead I would donate 50%
    of my income to charitable contributions to
    better the needy in this world.

    You guys should be pissed off at the CEO’s of the financial institutions , the regulators in the mortgage industry,SEC, etc. Soros bet against
    these crooks and made money.

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