Hedge Funds Dumping Commodities

Anyone remember when we talked about speculators and the Senate held a hearing?

In the midst of commodities dropping like a stone, OPEC is having a meeting to decrease oil production.

But it might be OPEC can do nothing as hedge funds continue to dump assets:

Hedge funds saw a record $210 billion drop in assets under management during the third quarter as investors redeemed an unprecedented amount of money from the industry after poor performance, according to a survey released Friday

So, for all those who deny speculators has anything to do with the dramatic price increase in oil this summer, the coincidence of hedge funds liquefying their assets and the incredible downward drop is yet another amazing synergistic moment?

It is now questioned if OPEC can even do anything about the price decline no matter how much they slash oil production:

With speculators fleeing, the cartel is going to have to build a floor under oil prices through disciplined production cuts. This isn't a group known for discipline, however. And given the wheezing global economy, OPEC has only an outside chance of pushing prices back up to $100 a barrel even if they manage to significantly slash output

If it is all just physical supply and demand shouldn't this production slash stop the price slide?

Looks like we need to revisit Commodities Speculators.

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Over-correction to the down side

When all this finally washes out, I'm going to throw everything I have into commodity stocks.


New Deal Democrat is awesome for writing contrary posts and the one he was most accurate one when everyone was saying he was completely full of it, was on oil dropping.

So, I agree with you but I have personally royally screwed up myself on the timing of when this is going to take place.

Stupid oblivious on hedge funds, speculators dumping and also now quite confused for most analysts are saying commodities will go through the roof, the increase in the money supply plus the deficit will cause massive inflation, and so on....basically what you're saying...is going to happen...

yet we have a compelling case from NDD on deflation too.

This is so schizophrenic, plus I think we have a rigged deck.

This deleveraging, not deflation

Deflationists are a stopped clock. One day they will be correct, but you don't set your watch to them.

Hedge funds redemptions are rampant right now, and they will continue to be for several months to come. But commodity stocks are extremely oversold. The market action is reflecting a deleveraging action, not a deflationary action.
Just look at the P/E ratio of Google as opposed to Conoco/Phillips if you don't believe me.

When the forced sellers have finally left the market I'm going to jump in with both feet.

Deflation OR Deleveraging

Both work, just look at JFK, SR. John Kennedy took bootlegging profits and entered the stock market at perhaps the worst possible time by anybody else's estimation: 1933. That stunt ended up making him a bundle, and among his kids he had one President, a long-term Senator, an attorney general, and a variety of other super-successful people.

So while I disagree with you on deflation hitting main street- it's precisely when deflation hits main street that is often the best time to jump into the stock market with both feet. Prices on stocks at that point will have no place to go but up.

Maximum jobs, not maximum profits.

Agree re the market action BUT ...

Midtown: The "crash" of a couple of weeks ago was forced deleveraging, I agree with that. It wouldn't surprise me at all to see the market bounce back significantly.

That being said, the decimation in the actual price of commodities is also quite real (as in, filling up the gas tank for well under $3/gallon).

We had a 4 month period of -1.1% deflation in 2006 coinciding with a 36% drop in the price of oil. Do you have an opinion about whether we will see more deflation in the CPI in the immediate months ahead?

Real Deflation

I've predicted the Argentina scenario for many years now: 1) Monetary deflation, and 2) Price hyperinflation.
Normally those two things are mutually exclusive. The reason why both things happened in Argentina was because the currency fell faster than the monetary deflation.

Now admittedly I could be wrong. Economic predictions are always tricky. But if I'm wrong it will be because the Fed manages to inflate the currency faster than the economy contracts, which will also mean hyperinflation because the currency will collapse in that scenario too.

The "deflation" you are observing isn't the classic definition of deflation. It's merely a drop in some commodity prices.
Also, I don't give the CPI much credibility for all sorts of reasons that I've listed here previously.

With that said, I expect some declines in the CPI in the coming months. But that will be overwhelmed by the monetary inflation in the pipeline from the massive bailouts all over the world.

OH, yeh. There is one part of the Argentina scenario that I haven't mentioned: 3) the government seizes people's retirement savings.