Against the Grain

How times change and quickly, The Times on Fri ran a two page business article entitled “The Commodities Crisis” in Jul the general consensus was of a “Commodities Super Cycle” set to last a generation. In our view going forward it is far easier to make a strong case for latter while the former is short term hype. In late ’07 into ’08 despite the known problems in western housing and the banking system the markets chose to ignore the school of economic cycles and embrace the BRIC growth forever experience. We are in the camp that believes the ’08 commodity price run was “Irrational Exuberance” by investors in a presumed counter inflation trade. Time will heal and the economic cycle will return to an uptrend which will again expose the short coming on the supply side of commodities that leaves the unknown of when.

Another weekend and another G8 meeting organised for Nov to be hosted by President Bush in the US expect a lot of hype and little hard action as usual. In the banking system The Netherlands government shored up ING Bank Sun and do not be surprised to see another bank coming under attack from equity traders this week as the dominos face scrutiny. In Asia the Chinese Q3 GDP growth slowed to 9% yoy, more than expected (Q2 10.1%). Spt industrial production growth was 11.4% yoy (Aug 12.8%), the CPI slowed to 4.6% yoy (4.9%), retail sales remained unchanged at 23.3% yoy. The urban fixed asset investment rose 27.6% in the year to Spt (year to Aug 27.4%), while urban disposable income grew 14.7% in the nine months to Spt rural disposable income increased at 19.6%. In India the Reserve Bank cut rates to 8% from 9%.A better overall tone to Asian equity markets gave the metals a modest boost at the start of the week. The LME stocks saw rises in cu and al, US receieved2475 and Sing 2200. On the metal front uneconomic mine are continuing to close in Canada Blue Note Mining will stop production at two pb / zn mines (21 mt pb and 40 mt of zn in concentrate) Nov 28 and in WA Norilsk Nickel will halt output at its Cawse ni operation without affecting its other mines in the state.

In the US Spt Conference Board leading economic indicators rose 0.3% (Aug -0.5%). The US equities improved as inter bank rates declined and Bernanke told the House Budget Committee he supported further spending stimulates to the economy.