Blame The Fed For The Commodities Slump

Tyler Durden's picture

Submitted by Bill Bonner via Bonner & Partners,

A Pileup in Commodities

Meanwhile, on the commodities highway, there’s a huge pileup.

The crash in the oil market – which has taken the price per barrel of U.S. crude down 53% over the last 12 months – has left a massive slick.

A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low. Overall, commodities are at a 13-year low.

And the coal miners have slid on the cheap oil and gas.

In the March issue of our monthly publication, The Bill Bonner Letter, we explained why energy was so cheap. The Fed dropped the price of capital so low that it cost almost nothing to borrow.

When the cheap money came to an end, so would the cheap oil, we guessed.

But it hasn’t happened – yet…

So far, the Fed’s cheap credit has exaggerated and prolonged the bear market in oil. Producers who should have shut down months ago are still pumping – kept in business by ultra-cheap financing.

Coal, cheap when we wrote about it back in March, is now even cheaper. Today, the price of coal is down 70% from four years ago.

This is pushing coal producers to the edge of solvency...

For example, Alpha Natural Resources, a big producer of metallurgical coal – or “met” coal, which is used for steelmaking –was delisted from the New York Stock Exchange because its share price was “abnormally low.” Bankruptcy is now in the cards.

And this from on the fate of another big met coal producer, Walter Energy:

Walter Energy, an Alabama coal miner, announced on July 15 that it is filing for bankruptcy. Senior lenders will see their debt turned into equity, and if the company cannot turn the ship around, it will more or less sell off all of its assets.


“In the face of ongoing depressed conditions in the market for met coal, we must do what is necessary to adapt to the new reality in our industry,” Walter Energy’s CEO Walt Scheller said in a press release.

Dr. Copper’s Diagnosis

Dr. Copper, too, says it’s going to be a rough second half of the year for the global economy.

Copper has earned the “Dr.” title; the old-timers say it is “the only metal with a PhD in economics.”

Copper goes into everything – houses, offices, electronics, autos, you name it. Although it’s not a perfect correlation by any means, when the price of copper falls, it indicates that the world economy is going down too.

From Bloomberg:

Goldman said prices will probably drop another 16% by the end of next year and expects Chinese demand to grow at the slowest pace in almost two decades.


Goldman on Wednesday lowered its copper price outlook by as much as 44% through 2018.

*  *  *

Why the big slowdown? Why is the world falling apart?

Because you can’t fake an economic recovery...

Instead of “stimulating” a recovery, the feds have “simulated” one.

They dropped the price of capital to near zero. Commodity producers took the bait. They borrowed money and increased production.

But global demand couldn’t keep up.

You can’t get real demand from empty credit. Real demand comes from Main Street, not Wall Street.

And for that, you need a real recovery, not a phony one.

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38BWD22's picture

It's always someone else's fault.

KnuckleDragger-X's picture

The FED is merely the biggest turd in the toilet, but there are a bunch of other big floaters in there, like GS and JPM. Everybody has either been bought or sold, too bad they don''t allow public hangings anymore.....

38BWD22's picture

There are exceptions to every rule!

Dindu Nuffins's picture

How can the Fed be blamed for $28 trillion of debt in China and ghost cities there? China spiked and dropped global demand on spending that it couldn't sustain. How did the Fed oversee that? 

Abbie Normal's picture

By implementing ZIRP, the Fed encouraged the housing, oil & gas, and other commodity bubbles.  Builders used the cheapest supplies available, which came from China; and when the new homeowners moved in, they bought the cheapest furniture available, also from China.  That inflow of fresh money into China caused their housing bubble to inflate, and of course they took it to the extreme of building entire ghost cities.  So yes, the Fed is the source of the current situation.

jcdenton's picture

It's called Vanguard ..

and ..

State Street, BlackRock, Fidelity ..

but yes ..

It's the FED ..

Remedy? (post collapse) ..

NoDebt's picture

Funny things happen when you invert the time value of money.  Not "ha ha" funny.  More like "oh, shit" funny.

NoDebt's picture

"A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low."

Is this correct?  I recall WTI getting somewhere down in the low 40s back in Jan/Feb of this year.

Serfs Up's picture

No, it's not.  I have a weekly close of just pennies north of $45 in both Jan and Mar.

However, this is as low as the Sept contract has ever been...but that's a difference measure...

SmallerGovNow2's picture

ZH: 3/17/15 NY CRUDE DROPS BELOW $43/BBL; FALLS 90C OR 2.1% TO $42.98/BBL

Colonel Klink's picture

Death to the moneychangers, END THE FED!

Fun Facts's picture

The privately owned Federal Reserve Inc. is a predatory. malevolent, depraved group of criminals who could care less about America or Americans and operate above all laws.

Meremortal's picture

As long as you continue to blame your problems on others, you will continue to suffer. 

Once you realize that everything in your life springs from you, you will begin to prosper.



Latitude25's picture

Yes.  Take control of your life and print your own money.

Bay of Pigs's picture

Exactly. What a simplistic and stupid comment that is above.

How the fuck can America "prosper" as long as the Fed is in control of the money?

RaceToTheBottom's picture

I thought he was talking about being a WS Bankster.

no1ninja's picture

Well it's seeing others suffer that makes my suffering that much worse.    I will be okay, but I am not an island on to myself.


At some point I will need to go for a walk and hope I do not get mugged. 

no1ninja's picture

The problem is that no one wants to be blamed for it.  So they are kicking the can down the road.  Very human instinct.



...and there is going to be  A LOT OF BLAME, and PRISON this time.  So they are giving as much time to their cronies as they can to cover their tracks and reherse the line "How could we see this comming?  We were just doing what the last FED Chairman did.   You guys had him in 2008 and said he did a good job.  How could we possibly know?"

madcows's picture

OPEC's continued pumping, in order to drive us shale out of business, has nothing to do with the FED.

Oh, and the rest of the world is already in recession.  So, copper and steel and every other commodity is slumping.

If you want to blame the FED, blame the enormous debts they hold, not their current printing.  Their printing just served to raise the value of the Dow.  The world's debts are the true cause of the depression.

Bay of Pigs's picture

Horseshit. The FED pumped $16T back in 2008/2009 to bail out banks worldwide.

Your OPEC theory is full of holes.

orez65's picture

The Federal Reserve countefeits capital. Thas sounds to me like a criminal activity.

For eample, take the market capitalization of Exxon, Apple, Google, Cisco, Microsoft ...

EACH of those has a market captialization of about $200 BILLION to $1 TRILLION.

The Fed can and has "printed" that amount of dollarss at the stroke of a key.

That is FRAUD.

The "heart" of our economic problems, the "root cause" is the Fed.

Cut the heart and the monster dies!

madcows's picture

I wish I had a printing press.

Dr. Engali's picture

In 2008 oil traded at $147 a barrel and then fell as low as $32 per barrel. To say that oil has ever left a bear market is pure bullshit. I really wish these market pundits knew what the fuck they were talking about.

ebworthen's picture

Hey FED, guys can't fake orgasms, and neither can you.

Wall Street's pretty good at it though, and Main Street pays their rent and buys them diamonds.

Anglo Hondo's picture

I decided last year that GOLD was the answer.

So far, I have a REALLY BIG hole in my back yard, and, so far, nothing. 

Except bones from someone's dead cat from the sixties. And an empty beer bottle.

Countrybunkererd's picture

Take the bones and bottle and channel some energy (bunk) while spinning the bottle to make an informed decision.  You will be more accurate and have a more informed decision than the choices offered by the FED in doing so.

I Write Code's picture

Wow, was that real or a hologram?  That was government inflicted simulation!

/Firesign Theater, c. 1972

Fishthatlived's picture

We're all bozos on this bus. Go ahead, squeeze the wheeze.

nsurf9's picture

And US distillate price decreases are priced at the beginning of the pipeline (weeks), and price increases are priced in at the knozzle (within minutes).

The Fed may not be able to stimulate an economy, but they sure can steal the buying power from our wallets ($4.5 trillion - better known as frigging quantative easing, without due process and without authority from the House of Reps) and divert a reasonable earn stream from our savings deposits ($11 trillion and counting) re-gifted for next to zero % to cronies - much higher for us on a signature loan or a real credit card rate.



Bill of Rights's picture

Even your billionaires have to be sitting there saying " What the fuck am I gonna do with all this money " there is only so many pieces of art, so many homes, condos, Islands, cars and so on that one can purchase. Main Street is the demand not the asshole who already has everything at his disposal.

Umh's picture

Politicians don't cost that much but you have to keep buying them.

Fiscal Reality's picture

ZIRP isn't the reason for low commodity prices. Petroleum demand is slowing worldwide and the Saudi's are pumping at full capacity in an attempt to destroy the US fracking industry. Over-supply is the culprit, NOT ZIRP. Copper is dropping because construction in China has halted, and construction elsewhere is muted. Economic slowdown is the culprit, NOT ZIRP. The economy is not recovering in spite of ZIRP. Commodities are falling in spite of ZIRP, not because of it.

Wahooo's picture

You only need to look at the balance sheets of miners to see that ZIRP is a cause of oversupply. Let's face it, when rates are low people buy more house, add more capacity etc. the Fed knows better.

Madcow's picture

All Government can do now is try and trick people into believing in the future so the bankers can steal their money. 

It sounds cruel, but its the only way to help the "economy"

Madcow's picture

All Government can do now is try and trick people into believing in the future so the bankers can steal their money. 

It sounds cruel, but its the only way to help the "economy"

gadzooks's picture

Well it is the Fed also, but the old colonial elitist order is responsible also, the way they traditionaly suck the life out of natural resources across the planet combined with the insatiable need for slave labor to go with it, and now with the internationnal Debt Rigging(yes  we have been servicing the debts of dozens of deadbeat countries for about 20 years now,and who do you think holds the long and shorts of it?)arragement that is going to fall apart, and nowhere to go to  restart their usual exploits, there gonna have to let the "REAL" Experts take over,,, the medeval era is either over or we`re gonna nuke ourselves back to its beginnings.

Meremortal's picture

You aren't going to change or end the FED any more than you can change or end the weather. 

Drop the useless narrative, the fantasies and the silliness and start building wealth. Every day you wait is a day lost that will never come back.

Your life is up to YOU, period.

No magic person and no magic thing is going to save your ass. It's going to take years of hard work by you and you only.



gadzooks's picture

how simple, of course you`re gonna be there when they change the rules or rig everything and legislate everything to steal it from most of us?

i did build wealth, just got a reason among 10 000 reasons now to take it from me, its called socialism, another word for criminal organisations and their lowlife  minions infiltrating our goverments.


Chuck Knoblauch's picture

In reality, it's a commodities bull market.

No bullshit.

gadzooks's picture

the`ll try, but the overall conditions wont make it bounce, and volume manipulation wont help much, defeats everything else.  domestic ratios instead of national quotas might help, but colonial coat tail riders wont have it, the old players are out of tricks, and the`ll sacrifice everything before lending a hand themselves.

Pipetex's picture

"we must do what is necessary to adapt to the new reality"  - Caitlyn Jenner