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In the final segment of Gary Shilling’s big essay on the Chinese hard landing, he argues that the inevitable bust will end in tears for the global commodity industry.Already, he says, commodities “show every sign” of being in a bubble zooming towards burst.
His points are as follows:
- Every global commodity has been on a tear, but much of that has been driven by speculators, firm in their belief of inexhaustible demand from China.
- But already, despite warnings about supply tightness, there are reports of huge stockpiles showing up in warehouses around the world.
- Weather has been bad, but it’s likely to turn, leading to huge surpluses and bumper-crops for agricultural commodities.
- As speculators suffer in the agricultural space, they’ll dump their other commodity holdings as well.
- A classic tell that industrial commodities were peaking was back in February, when gold miner Barrick Gold announced the acquisition of copper miner Equinox.
- Meanwhile, not only have the prices of various commodities been coming down, people still haven’t realised it. It’s a classic Wile E. Coyote moment.
- Finally, the fact that so many commodities have moved in lockstep further confirms that the move is based on speculation, not on fundamentals.