Oil Hits $75

[legion]

http://news.yahoo.com/s/ap/20060705/ap_on_bi_ge/oil_prices

[turbo6bar]

Might hit $90 before we hit $65

[artplumber]

But there were a whole bunch of people thinking it was going to $35 bbl before long.

[nostatic]

$35 for bbl/2

you missed the fine print...

[legion]

This is the traders overreacting and driving up the price at the smallest bit of bad news (North Korea).

Eventually, things will turn the other way and they will drive down the price at the smallest big of good news.

What will cause the turn? I think when the house-of-cards we call China's (supposedly) thriving economy falls apart.

Hello Asian Financial Crisis '06!

[gaijindabe]

Back to expensive oil? But we are not done with this cycle of global warming stories... Besides, bird flu is next on the agenda. And are illegals still or sneaking in or not??

[turbo6bar]

I am not sure that a falling Chinese economy won't take down other economies, as well.

I have been in the camp that commodities are in a bubble, but I'm beginning to wonder if this is the beginning of a worldwide rush to all things material. Has the investment community lost faith in the central bank's ability to restrain inflation? If so, my investments are 100% wrong.

Otherwise, worldwide demand for oil and gasoline is increasing. US gasoline demand is actually increasing despite high prices. As long as that is the case, bend over.

[artplumber]

Originally posted by nostatic
$35 for bbl/2

you missed the fine print...

My bad

[1967 R50/2]

Originally posted by turbo6bar
I am not sure that a falling Chinese economy won't take down other economies, as well.

I have been in the camp that commodities are in a bubble, but I'm beginning to wonder if this is the beginning of a worldwide rush to all things material. Has the investment community lost faith in the central bank's ability to restrain inflation? If so, my investments are 100% wrong.

1. Yes...if the Chinese economy falters, it will have huge ripple effects. A bigger issue would be if the US economy falters, we will probably take down China and India with us. And...

2. Yes...we are probably in a commodities bubble, driven by speculation but...

3. Yes, the underlying demand for commodities is real. There is a worldwide rush on material items because China and India are growing at over 8% a year. Until technological substitutes can be found for raw materials, prices will go up. What do I mean by "technological substitutes"? Think fiber optics substituting for copper cable. And...

4. Yes, the investment community has lost some faith in the Fed's ability to restrain inflation. It has become increasingly obvious that with the free flow of funds across borders, that the Fed's ability to "tighten" the money supply is not what it use to be in decades past. Funds will just come from elsewhere. Remember that the rest of the developed world has a savings GLUT and they are looking for people to loan it to. Wonder who that might be?

But that is just my opinion.

[turbo6bar]

Can the commodities market be sustained? Will slowing economies in some countries be offset by rising economies in developing countries?

I'm beginning to think a small hedge position in oil and gold, post correction, might not be a bad idea.

[1967 R50/2]

Originally posted by turbo6bar
Can the commodities market be sustained? Will slowing economies in some countries be offset by rising economies in developing countries?

I'm beginning to think a small hedge position in oil and gold, post correction, might not be a bad idea.

It's complete crystal ball stuff and it would be risky to speculate....which is what many people are doing anyway.

But consider this: What is driving the demand for commodities is China and India, so one way to consider how long the demand for raw materials will go on is how long they will have to grow at the current rate until they reach a standard of living equivalent to the US.

There was a book I read a few years back called "the Paradox of American Power" by Joseph Nye. In it the author contended that is China expanded at the current rate their economy would surpass the US as the world's number one economy somewhere around 2070.

But as I mentioned above, when commodities get rare, people tend to find technological substitutes. History is full of them:

Whales got rare...so we learned to refine mineral oil.
Copper got expensive...so somebody got the idea for fiber optics
Couldn't get to the rubber plantations during the war...so butyl rubber was developed.
Freon was found to damage the ozone layer....so now there is CFC free Air Conditioning.
Land in Manhattan got too expensive....so they built skyscrapers.

So will the commodities boom go on forever? Certainly not.