You Know - there are some positives to the present economic implosion. Commodities are cratering. Perhaps if we wait another six months FasTracks will have dropped back to the original 4.9 billion dollar estimate. Steel or Iron ore seems to be leading the way - down, down, down. Check out the following article.
Commodity Rout Far From Ended as Recession Approaches (Update2)
By Claudia Carpenter and Millie Munshi
Oct. 13 (Bloomberg) -- The record 39 percent decline in commodities since July 3 is nowhere near finished, if history is any guide.
The Reuters/Jefferies CRB Index of 19 commodities from coffee to silver would have to drop another 37 percent to reach the trough of the 2001 recession and 35 percent for the 1998 slide, when crude bottomed at $10.35 a barrel. The measure is 28 percent above its lowest during the economic contraction that ended in November 1982. Copper, after its biggest weekly loss in two decades last week, is still triple 2001 levels.
While tumbling prices of oil, nickel and soybeans already crippled stock markets from Moscow to Sao Paulo and sliced Alcoa Inc.'s profits by 52 percent, investors say rising stockpiles of copper and slowing energy demand mean prices will continue to fall. The U.S. slowdown will last more than a year and be deeper than any in three decades, according to Harvard University economist Martin Feldstein, a member of the committee that charts American business cycles.
``This downturn is going to make 2001 look like a walk in the park,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd., who sold all his commodity investments in July. ``This is the bursting of a 25- year asset-credit bubble. People have really stopped spending money, everywhere.''
The CRB ended Oct. 10 at 289.89 after losing 11 percent during the week. The index gained 29 percent in the first half, the best start ever to a year, before tumbling 25 percent in the third quarter.
Forecasts Slashed
Goldman Sachs Group Inc. of New York cut its 2009 estimate for lead by 17 percent and copper by 12 percent on Oct. 1. Zurich-based UBS AG said Oct. 6 nickel will be 32 percent lower than previously forecast, while platinum will be 50 percent less than anticipated. Morgan Stanley of New York reduced its 2009 aluminum estimate by 20 percent three days later and palladium by 45 percent.
Crude oil at $77.70 a barrel and copper at $4,790 a metric ton, the Oct. 10 closing prices, are at least 46 percent below their July peaks, signaling an end to record profit for Freeport- McMoRan Copper & Gold Inc., the biggest publicly traded copper producer, and energy producer Exxon Mobil Corp. in Irving, Texas.
Exxon's earnings may fall more than 2 percent to $45.9 billion in 2009, the first drop since 2002, according to data compiled by Bloomberg. The company is scheduled to report its next financial results on Oct. 30. New York-based Alcoa said Oct. 7 third-quarter earnings dropped by more than half to $268 million. Freeport-McMoRan of Phoenix said July 22 that second- quarter profit fell 14 percent to $947 million.
Billions Lost
Steel, metal and related producers of basic materials are the worst-performing group this year in the MSCI World Index, losing 48 percent so far, a larger decline than banks and energy companies. Exxon Mobil plunged 20 percent last week to $62.36 in New York trading.
Russian shares, dominated by commodity companies including OAO Lukoil and OAO Gazprom, lost 62 percent this year, helping to wipe $230 billion from the wealth of the nation's 25 richest people in five months. Brazil's Bovespa index, led by Petroleo Brasileiro SA and Cia. Vale do Rio Doce, tumbled 52 percent from its high in May to 35,609.54.
The median estimate for U.S. growth next year in Bloomberg surveys of economists has declined in eight of the last nine months, with the odds of a recession now pegged at 90 percent, compared with 50 percent in May. The U.S. economy will grow 0.1 percent next year, according to the International Monetary Fund.
`Irrational' Concern
``This is going to be a longer recession than the last four, over three decades, where the average duration was about 12 months,'' Feldstein, who retired in June as president of the National Bureau of Economic Research, said Oct. 8 in a Bloomberg Television interview. ``It is going to be deeper in terms of decline'' in output, he said.
The U.S. Federal Reserve is leading an unprecedented push by central banks to flood financial markets with dollars, backing up government efforts to restore confidence in the banking system. Policy makers from the Group of Seven nations pledged at the weekend to take ``all necessary steps'' to stem a market panic. Democratic presidential candidate Barack Obama plans to give a speech on the crisis, his campaign said in an e-mail today.
``We've entered the realm of irrational anti-exuberance,'' said Doug Hepworth, a research director at New York-based Gresham Investment Management LLC. ``Commodities are part of it.''
A slowdown is already leading producers to cancel projects, which may restrict supply and limit the drop in commodity prices.
Gold Producer
OAO Polyus, Russia's biggest gold producer, said this month companies are reviewing projects because of the credit crunch that sent the three-month London interbank offered rate for dollars to 4.82 percent last week from 2.79 percent three months ago.
Russia's largest steelmaker, OAO Severstal, said Oct. 10 it will slash output in Russia, the U.S. and Europe by as much as 30 percent. The Organization of Petroleum Exporting Countries called a meeting for Nov. 18 and is ``very likely'' to cut output, President Chakib Khelil said Oct. 9.
Analysts surveyed by Bloomberg expect oil to average $100 next year, 23 percent more than the current forward prices. For copper, analyst estimates are 38 percent higher.
Futures on the London Metal Exchange show investors disagree. The contracts suggest copper will cost $4,823 a ton a year from now, compared with $4,869.50 for the closing price of the contract for immediate delivery on Oct. 10. Crude oil for delivery in October 2009, traded on the New York Mercantile Exchange, is at $82.24, 5.8 percent more than the contract closest to delivery on Oct. 10. Copper peaked this year at $8,940 a ton and oil at $147.27.
Financial Collapse
``These curves are discounting huge declines in demand that I don't see happening,'' said Pete Sorrentino, who manages $16.5 billion at Huntington Asset Advisors in Cincinnati.
Crude oil rose as much as 5.1 percent today and copper and most other commodities also advanced after governments in the U.S., Europe and Asia pledged to avert a collapse in the financial system.
Copper stockpiles in warehouses monitored by the London Metal Exchange rose 92 percent since a May 7 low to 209,325 tons. Combined with reports from bourses in Shanghai and New York, inventories are equal to 4.7 days of global usage, compared with as little as 3.2 days in July.
The International Energy Agency, the adviser to 28 nations, on Oct. 10 said oil demand next year will be 440,000 barrels a day less than anticipated a month ago, at 87.2 million a day. This year's gain will be the smallest since 1993, the Paris-based IEA said.
Presidential Election
Growth in global crude consumption slowed to 0.3 percent in 2001, from 1 percent the previous year, according to BP Plc data. Demand shrank 0.1 percent in 1991, the first decline since 1983, the data show.
``We won't see these prices going back to their record highs anytime soon,'' said Catherine Virga, an industrial metals analyst at CPM Group Inc. in New York, a consultant to companies including Barrick Gold Corp. ``The economic outlook is bleak. The weakest point will be in the fourth quarter of this year and the first quarter of next year.''
U.S. economic growth, a subject that has dominated debate before the Nov. 4 presidential election, will drop to 1.6 percent this year and 1.2 percent in 2009, from 2 percent in 2007, according to economists surveyed by Bloomberg. During the last U.S. recession, growth slowed to 0.8 percent in 2001 from 3.7 percent in 2000.
``I don't see any optimism for commodity markets until well into the second half of 2009,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``Banks are really overestimating how soon the turnaround will come. We're mired in a global economic recession.''
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Indeed. I would like to know that as well.
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