Hello friends.
Gasoline has come crashing down, and commodities have only fallen about half as much. Because the major price in producing most commodities aside from labor is gasoline, it makes sense that the price of commodities will follow the price of gasoline quite well. However, there is a lag effect. It seems to take quite a few months from the point when gasoline falls down to the point where commodities follow its lead and also fall down. This makes sense because commodity producers are not eager to lower their prices and will only do so if they are forced to by other commodity producers lowering prices. On top of this, commodity producers will have some set reserve of gasoline that may have been purchased at a higher price. They will need to exhaust their current supply of gasoline before they buy more of it at the new market price which is lower. If you look at history, this sort of pattern has played out many many times before. Over time, this ticker of commodities over gasoline is slowly trending down. The reason why should be obvious: Innovation dictates that we use less gasoline per commodity produced. To put it another way, our commodity production is becoming ever more efficient as time goes on. This downtrend is very likely to continue for the next 100 years and beyond, assming you beleive as we do that we are nowhere near "perfect innovation" and that there are many substantially important things that we are yet to discover with regards to producing commodities.
Our prediction through the end of this year is that gasoline will slow or even temporarily reverse its collapse, and commodities will start to speed up and collapse much more rapidly.
The significance of this effect for the broader market would be hard to overstate. Cheaper gasoline is great, but that's only one commodity that consumers regularly use. They are still paying a lot for all the other commodities. Easing prices in commodities following the collapse of gasoline prices would be the point where consumers finally start to feel relief from this inflation and consequently start spending more money on consumption since they are no longer as broke as before. This increased spending on consumption as a result of lower commodity prices will be good for the global risk market since it will bring better earnings for most stocks (aside from most notably commodity production stocks, which may have some more suffering in their near future).
We aren't planning to trade this exact ticker, but we are using this as a guiding idea for our view on commodity and risk markets going forwards.
Thanks for playing.
Gasoline has come crashing down, and commodities have only fallen about half as much. Because the major price in producing most commodities aside from labor is gasoline, it makes sense that the price of commodities will follow the price of gasoline quite well. However, there is a lag effect. It seems to take quite a few months from the point when gasoline falls down to the point where commodities follow its lead and also fall down. This makes sense because commodity producers are not eager to lower their prices and will only do so if they are forced to by other commodity producers lowering prices. On top of this, commodity producers will have some set reserve of gasoline that may have been purchased at a higher price. They will need to exhaust their current supply of gasoline before they buy more of it at the new market price which is lower. If you look at history, this sort of pattern has played out many many times before. Over time, this ticker of commodities over gasoline is slowly trending down. The reason why should be obvious: Innovation dictates that we use less gasoline per commodity produced. To put it another way, our commodity production is becoming ever more efficient as time goes on. This downtrend is very likely to continue for the next 100 years and beyond, assming you beleive as we do that we are nowhere near "perfect innovation" and that there are many substantially important things that we are yet to discover with regards to producing commodities.
Our prediction through the end of this year is that gasoline will slow or even temporarily reverse its collapse, and commodities will start to speed up and collapse much more rapidly.
The significance of this effect for the broader market would be hard to overstate. Cheaper gasoline is great, but that's only one commodity that consumers regularly use. They are still paying a lot for all the other commodities. Easing prices in commodities following the collapse of gasoline prices would be the point where consumers finally start to feel relief from this inflation and consequently start spending more money on consumption since they are no longer as broke as before. This increased spending on consumption as a result of lower commodity prices will be good for the global risk market since it will bring better earnings for most stocks (aside from most notably commodity production stocks, which may have some more suffering in their near future).
We aren't planning to trade this exact ticker, but we are using this as a guiding idea for our view on commodity and risk markets going forwards.
Thanks for playing.