A recent article in the WSJ talks of “China Nurtur[ing] Futures Markets in Bid to Sway Commodity Prices“:

Chinese leaders are concerned that their nation’s enormous economic expansion is becoming an excuse for foreign suppliers to inflate commodity costs. So, they hope to use their three futures exchanges to fight back.

Government officials say the country is positioning its futures markets to be major players in setting world prices for metal, energy and farm commodities. By letting the world know how much its companies and investors think goods are worth, China hopes to be less at the mercy of markets elsewhere.

Its easy to see why China would want to protect itself from recent large fluctuations in commodity (mainly oil) prices, when they spent $180 billion importing oil last year. They won’t have a very easy time doing it, however. China is still a communist government and they do not have a legal system in place to support futures contracts. None of them would be enforceable. There is also a huge policy bias towards large state-owned enterprises like China Oil. The Shanghai Futures Exchange won’t be an open, competitive, and effective market until small players in the exchange can get equal rights. The authoritarian Chinese Government policy makers (dictators) only allow the economy cake to grow on the condition that the largest piece is received by their friends in high positions at giant state-owned enterprises.

Unfortunately, just as the Chinese economy is manipulated by a small group of people, the US (and world) economy is manipulated in the same manner by the FED and entities like Goldman Sachs. China should be setting it’s sites on getting rid of Goldman Sachs instead of setting up its own pitiful exchanges. There is not much of a link between the HUGE fluctuations in oil prices and China’s steady increase in demand for oil (and other commodities). The true culprit and beneficiary behind these things is (government sponsored) Goldman Sachs. GS manipulated who would be rescued by with its immense amount of government cronies in Washington, successfully killing off its competitors, and then rode the energy curve up and down gaining huge rewards in the mean time.

If China’s goal is control and manipulate the biggest economy in the world (it is), all it has to do is take a look at the US’s Federal Reserve. We do it much better here in the states! We set up an authoritarian entity, claim that its “private” and separate from any form of oversight, then let it freely give out trillions of tax payer dollars to support whatever manipulative policy it desires! All without any of its skeletons coming back to haunt any elected officials.

Phil Taylor on oil:

“So here is where the bullish oil premise runs into trouble – WE DON’T HAVE ANY MONEY! We had to borrow money last year to pay over $100 a barrel for much of 2008 and, since then, the global economy has collapsed, our 401Ks were chopped in half, 10% of us lost our jobs and can’t afford ANY oil at all, and those of us who are left have become a lot more concerned about going to a gas station and paying $60 to fill up a tank. You can bitch all you want that $60 with the dollar at 78 isn’t the same as $60 with the dollar at 84 but WE DON’T CARE. There has not been enough (any) wage inflation to put more dollars into the hands of the consumers. You cannot sustain inflation unless you inflate the money allocated to the consumers as well. Not only that, but the banks have stopped lending and our homes lost 25% of their value so we can no longer take out lines of credit to gas up the Hummer. In short – it’s not 2008 anymore and you can fantasize all you want about $100 oil but your customers just can’t afford it.

And consumer confidence may be back to 52, but it was 120 last summer when people were taking third mortgages out (no docs of course) before heading to the gas station to pay as much as $5 a gallon. I may be early on this call but I do think that – the longer I’m wrong – the righter I’ll be in the end….

We’re still mainly in cash with oil as our big downside gamble…”

The EIU’s Robin Bew was interviewed on April 1 about his current expectations for the world economy.  He finds little to indicate a quick turn around. Here are a few excerpts from the transcript (we added the emphasis).

Regarding a growth forecast and the time until world recovery begins:

“It became clear that the pace of economic decline actually accelerated during the fourth quarter and the monthly data that we’ve been getting since then (at the moment we have figures for January and some numbers for February) suggests that there was no slackening in that pace of decline. In fact, if anything, it might have got even worse. So we’re now looking at a situation where output is declining very rapidly in a number of major markets – America, as you said the eurozone, also Japan.

So a very, very significant negative outcome. And even if you did see a recovery later on this year, and we think that’s highly unlikely, you would still end up with a terrible number for the year as a whole. In reality, I think we’re not looking at a recovery until well into 2010 or maybe even 2011.”

Regarding world trade:

“Our forecast at the moment for world trade volumes is that they will shrink by about 6 per cent this year, something like that. Now in cash terms, it’s a whole lot worse. If you look at a market like China, which is one of the world’s biggest trading powers, trade there, cash value of their exports is off 20 per cent. Some markets (Japan for example) off 50 per cent. So ‘collapse’ is not too strong a word.

Regarding the banks and lending:

“Obviously many banks have been nationalised, the ones that haven’t are still taking a lot of money from the governments and they’re desperately trying to repair their balance sheets, so it is going to be very unlikely to start extending credit until that balance sheet repair is done and we’re a long way off that.

But I also think it is important to remember that actually demand for many types of credit has also collapsed.”

Regarding oil prices:

“Well, we’re in an environment now where demand is not rising very quickly at all. In fact, in many markets it is falling and that’s a recipe for oil prices to stay relatively depressed.”

By way of summary:

“Our expectation is by the time you get to the end of this year the best you can say is that perhaps we’ve stopped falling. But in terms of actually getting some growth, even very modest growth, I think you’re looking into 2010 for that and in terms of the sorts of growth which is going to make a difference to how you and I actually feel, I think you’re looking probably to the end of 2010″

Obviously, the Economist’s forecast differs sharply from those expecting a V shaped recovery in the second half of 2009.

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Ted Peroulakis says to buy oil:

“The world’s utter dependence on oil remains unchanged.  I believe the upside for oil prices is now much greater than the downside in the near term.  I think the worst of the great oil bubble burst is behind us.”


“I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. “

and Boone Pickens:

“I say $60 before it drops below $40”

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