Commodity prices and the share prices of those who mine and process commodities have literally collapsed. It is far worse than the great depression for these guys and it is across the board. This is not a case of some foo-foo item collapsing in price. We are talking about copper and oil and iron here. And there are a lot of dipsticks out there now running around saying it will be permanent or essentially so. Such is the way of the herd, always thinking that its smart to project current conditions into perpetuity. No matter how many times it happens, the suckers always believe that trees will grow to reach the sky and that things needed in order support the carrying capacity of the planet are going to go worthless. Never can they see that the wild volatility has NOTHING to do with the commodity or those bring it to market and ALL of it has to do with a fake fucking money supply which can be pumped by debt to blow up prices to the moon and then dumped in an eyeblink as those who have debt either scramble to pay it down or simply default on it.
I am on clear record as a deflation-ist** here for many years now. It has already killed commodity prices and sooner or later it will hit equities as well. Lots of experts are out there now saying that "commodities will never recover". Essentially, they think that we have become so adept at providing for ourselves that scarcity is no longer an issue and thus prices will be down forever. And commodity prices may indeed stay low for a long time. In fact, I hope they do! Lower priced commodities makes living cheaper. Only rich people want higher asset prices because they intend to make money off of the rest of us. Regular working people want prices to be as cheap as possible.
But aside from that, nothing goes straight up or straight down and that is what we have to keep in mind when trading. Did commodity usage really just fall off a cliff leading to the collapse of VNR, GLNCY, ARP and ORIG? Maybe the usage went down a few percentage points but I'm eating as much food as before, burning as much gas in my car, using the same amount of electricity (even though I am generating it myself in this case), etc. We are not talking about overpriced trips to Dizzy land here folks. We are talking about mining and processing copper and oil and steel. The only thing that is out of kilter here is the fake money supply. It is the fear of default that is causing ORIG to be sold off so that its price to book is now only an outlandish 5 cents on the dollar. Forward PE of ONE??? HA HA HA!! Oh sure, maybe in 2017 it will have trouble leasing out some drill rigs but that is a year from now and this stock can go to $9 in the mean time and still be cheap by traditional metrics.
This sell off is herd panic pure and simple. Consider it a gift at these low prices because you can be well assured that they won't last long. It has always been true and it will not be different this time that the cure for low asset valuation is low asset valuation. If the fed blinks then it will happen sooner rather than later. My models say we are likely going to finish Commodity Capitulation by the end of January and probably sooner and then oil is likely going to nearly double from current levels sometime afterward in 2016.
** Actually I am a super nova economy theorist. First the deflationary collapse and the implosion but then governments scramble to "do something" about it and they end up killing off confidence in the fake money. No I don't know when it will happen and neither does anyone else. Yes I think it will occur much faster than anyone thinks is possible once it begins to happen.
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