Posts
The runup in almost all commodity prices this year is widely dismissed with the argument that it's all due to mindless, government-mandated, stimulus-funded stockpiling of commodities by the Chinese, so prices will sooner or later fall. To be sure, there are numerous reports of Chinese stockpiling of things like copper. But look at the rebound in the prices of miscellaneous commodities such as hides, rubber, tallow, plywood and red oak. This index, a subset of the broader JOC index, is up 37% from its low, and the broader index is also up 37% from its low. I find it very difficult to believe, as I've said before, that the rise in commodity prices is all due to the Chinese. Can they be stockpiling almost every commodity on the planet? I think the simplest explanation is probably the correct one: commodity prices are up because global demand is rebounding and central banks are very accommodative.
2 comments:
Scott,
It certainly does seem impossible that irrational stockpiling can explain all of these commodity prices, and it probably doesn't. I found this article interesting, however:
http://mises.org/story/3573
I would be interested to see what you think of the article. Prices are obviously set at the margin, and it sure does look like China has made absolutely gigantic mistakes in the size of their credit stimulus -- and in their efforts to centrally manage the economy.
China recycling dollars back into US assets seemed rational, until it no longer did.
China diversifying out of dollars will seem rational as well, until it won't because the size of expenditures distorts market(s).
Post a Comment