Commodities are chumps of the world economy
DON BAUDER ( San Diego Union Tribune ) 18-Mar-1999 Thursday p. C-1
Ofttimes, the rascal is a politician. Consider gold. Countries such as Australia and Belgium have been selling off their stores of the metal. This week, French President Jacques Chirac said the International Monetary Fund should consider selling gold. Wham!
Then President Clinton agreed: The IMF should sell gold to help finance debt relief for poor countries. Bam! Gold was knocked cold again, and silver took it in the solar plexus, too.
Now that Treasury Secretary Robert Rubin wants the IMF to sell up to 10 million ounces of gold, the price closed at $284.10 an ounce yesterday, little changed at a pathetically low price. The good commodities news was that crude oil climbed 4.1 percent to close at more than $15 a barrel. But that may not hold.
Agricultural commodities are really in the sewer. Tremendous productivity advances have kept prices down. But the biggest problem is the sinking world economy. Exports are in trouble.
Last month, U.S. farm prices were down 5 percent from a year earlier, Federal Reserve Chairman Alan Greenspan said this week. U.S. agricultural exports to Japan fell by more than 20 percent from 1996 to 1998, Greenspan said.
"All told, falling shipments to the Asian countries accounted for more than 80 percent of the drop in the value of farm exports over the past two years," he said.
American consumers are expected to rescue the world; we're being counted on to buy exports from ailing nations desperately needing dollars. But the fat American consumer won't help farmers: "Consumers, especially in affluent economies, do not boost spending on food to nearly the same degree that their incomes rise," Greenspan said.
Indeed, affluent Americans go on diets.
Other problems in the world are walloping commodities. Consider sugar: "With a monstrous Brazilian crop looming over the market, expect new lows to continue to be made," says William O'Neill, senior futures strategist for Merrill Lynch. Currency problems and other woes could continue to hurt cocoa.
With the world economy weakening -- the United States being the exception -- industrial commodities are also in the dumps.
"Oil has come back a little on the expectation that OPEC would get its act together, but as long as economies such as Japan's are so weak, oil and other commodities will be soft," says Howard Roth, economist for Rancho Santa Fe-based Investment Research Co., noting that China is in deflation and Japan may go into a deflationary spiral.
With various commodity indexes trading at levels not seen for 25 years or so, "the downward spiral in commodity prices continues with across-the-board weakness," O'Neill says.
Oh, from time to time there are daily increases: For example, the United States will announce some new support program, and prices of an agricultural commodity will rise. This week, news of a trucking strike in Colombia pushed up coffee prices. But overall, the souse remains in the gutter.
"We're looking at the possibility of worldwide deflation," says Richard Russell of La Jolla's Dow Theory Letters. "There is overcapacity across the board. Agricultural commodities, metals -- they are getting killed."
Central banks are fighting deflation by pumping up their money supplies, says Russell, pointing in particular to the United States and Japan. "But the money to fight deflation is going into stocks, and a handful of stocks at that," Russell says.
Russell is a longtime lover of gold, but he has about given up the fight: "I have some gold coins, but that is about it."
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