OfflineI receive some wonderful strategy from some of the largest banks and brokerage houses across the country. Unfortunately, I also receive some items that when put together, it causes a pause of concern. The latest information was received on Friday and at first glance has nothing to do with real estate. However, when you extrapolate the effects it could have on the economy; obviously it does affect real estate.
It has to do with the price of corn. Yeah, corn. It started by having some analyst observations regarding the similarities between 2008 and 2011. And now, the price of corn is the latest of a series of signals that remind investors about 2008, the year the financial crisis spread across the globe and Lehman Brothers collapsed. This information comes from the Bank of New York.
Mysteriously, on June 9, the front month corn futures contract hit a high on $793 before staging a "notable reversal," down 21 percent by the close on Friday. Compare this to the front month futures contract for corn in 2008 when it hit a high of $765 on June 23, only to plunge 34 percent by the start of August.
Also, in early 2008, a clear reversal in prices of basic foodstuffs happened well before oil prices peaked in July, with a dramatic fall in wheat prices the most prominent. (BTW, wheat prices were down more than 30 percent)
But silver also fell 30 percent since the start of May and the Baltic Dry Index, which tracks shipping prices, is half the level it was at last September.
Last but not least, while this information tells us absolutely nothing about what should happen tomorrow, having the various markets acting like they are, while our banking system is still weak, tells me that we should be aware of the commodity relationships and at least keep one eye on the macro picture.
Commodities only drop when there is less demand or more supply (and there is no additional supply). Weakened demand means less flourishing economies which mean no reduction in unemployment which means a reduced need for end user home ownership.
[It doesn’t mean you can’t make money in real estate but you have to understand the timing of various cycles. This is especially true in today’s global economy where a sneeze in China can give America a cold. Thank your elected politicians for that as they have had poor economic policy for the last 30 years.]
Always Looking to Acquire Houses | Always Looking to Amaze Investors
Food for thought....no pun intended. A 21% move doesn't seem like a fundamental move, more like a bubbly move. The music is stopping and some traders are left without chairs. If you look at the historical commodity food price index, corn pretty much mirrors it. But my take is, do we have, today, similar economic conditions that we had in the run up in commodity prices from 2007 to 2008? I would say no. With economic conditions the way they are today, I don't see what is driving the demand for food since mid 2010. Is the current run up in prices a function of supply and demand or the erosion of the dollar? If you look at the channel of commodity prices from 1991 to 2007 and then the wild swings from 2007 to today, why the wild swings in the last 5 years? Todays hi tech trading environment may be a factor. Traders move closer to the exchanges to gain nano-second advantages over other traders. We saw how the price of oil was manipulated on the inter continental exchange when Chase and Morgan Stanley got involved there to escape U.S trading regulations. In order to make money, traders need movement. Either up or down doesn't matter, as long as it moves. By the time we hear info, the big boys are already leaving town with the lions share of the profits. As I say, in today's environment, free markets are free to be manipulated. Just my take and I say be wrong.
http://www.indexmundi.com/commodities/?commodity=food-price-index&months...
and discussion Bill and TRSD,
so, cycles are meaningless, news are late, China controls our economy...
what do we do? run when the tough gets going, like most people do, or learn how to invest when the time and place is right?
Learning and progressing every day,
Valerie
Valerie
“And will you succeed? Yes indeed, yes indeed! Ninety-eight and three-quarters percent guaranteed!” ― Dr. Seuss
"I believe in angels, the kind that heaven sends; I am surrounded by angels, but I call them friends" - Unknown
My journal: http://www.deangraziosi.com/real-estate-forums/investing-journals/59110/...
This is a very difficult market to predict. Even those big investors are failing at it. We could be in hyperinflation in the next 5 years, it could drop even further, or it could slowly heal. I think we all know there's no big boom in our near future ( that is unless the puppetmasters find some new exciting way to tweak those fragile numbers ). So always good to be aware what is going on but all we can do is exactly that, be aware and be smart. Know when to change strategies.
Just my 2 cents, Ben
Thanks, Ben
is that the IMF announced it would no longer use the US Dollar as the main world reserve currency. Right now, we are the only country that can print US Dollars; the money that the world uses as its international money. It looks as if this is going to happen; but if the US Dollar is no longer the international monetary unit; our dollar is going to plummet in value significantly! Every nation buys oil in ... US Dollars. US Dollars are used globally in export and trade.
And, the way our country has been printing money to compensate for all the 'economic relief' and outrageous government spending programs, we are IN TROUBLE. Don't mean to be a downer; but we have to keep an eye on things like that; its the biggest macroeconomic factor around.
Great topic Bill! Just my 2 cents!