Some Interesting Info......

[setravis]

I got this off a website, you might find it interesting also.

************************************************************************

Against the views of Wall Street and the press, commodity prices have continued to rise. In fact, the prevailing view in November was that commodity prices had peaked and that a major and much deserved liquidation was in order. Over the last two years a number of economists have suggested that Chinese growth was unsustainable and that extensive demand for copper and other commodities was set to end. Also over the past two years, the Federal Reserve has remained eerily confident that inflation wouldn't be able to take hold because of their ability to raise interest rates. About the only markets seemingly interested in embracing the bearish mentality are the grains, and even that is being made possible by persistent production surprises from the North American crop and because of bird flu fears.

The press has been equally disrespectful of the rally in gold, and while December has brought forth a significant increase in speculative fervor, we think that the fundamental reasoning for the rally is more sustainable than most are willing to concede. Certainly there is a global trend toward higher interest rates and certainly there is the chance that soaring energy prices will derail the world economy, but we continue to see a gathering storm in commodity prices that could potentially send prices to unheard of levels. Certainly high oil prices seemed to stall activity following the late August spike, but one might have to ask if the real reason for the oil price slide in the 3rd and 4th quarters was prompted by the US hurricane setback or if the setback was simply a necessary corrective track in a bigger picture continuation pattern.

With Chinese and Indian growth remaining high and the US, UK, Japan and Euro zone economies also moving forward, we think that commodity demand will only improve in 2006! In fact, one only needs to look at the price action and the demand for copper, zinc, lead and aluminum to get a sense that some "big picture" adjustment is in motion. Lately, a spike up in natural gas prices has seemingly prompted an escalation of alternative use in many manufacturing facilities, with recent reports of increased sales of corn furnaces and other reports of soybean oil being used as an energy source.

In our opinion, ongoing growth in 2006 will result in higher interest rates than what the market currently expects, oil prices will remain high and the impact of those high oil prices will continue to trickle through every segment of the economy. While we hesitate to suggest that all of the markets that were weak in 2005 will be strong in 2006, we do get the sense that historical changes in the oil sector and the globalization of demand will serve to pull up prices in almost every commodity market. As for the inflation situation, most in the world fail to realize the catastrophe that was avoided in 2005, as an explosion of food prices could easily have joined the oil price explosion. On the other hand, the need to produce most commodities without the slightest setback remains, even if grain market participants view production capacity to be invincible.

MORE INFLATION & MORE COMMODITY PRICE GAINS IN 2006

One might suggest that both the copper and gold markets will be very important leading indicators for the global economy and overall commodity prices in 2006. In fact, it is our opinion that further appreciation in the metals markets would seem to require either a strong healthy economic environment or perhaps even an inflationary environment! Seeing nearby copper prices above $2.00 per pound after seeing a low in 2005 of $1.32 certainly surprised the marketplace but with most of the gains in that market the result of surging demand and tight supply. While some of the rally in copper over the last year was fueled by strikes or other temporary supply disruptions, it is our opinion that overall the base and precious metals rally is and was a direct symptom of broadening global growth. Furthermore, copper prices have managed an epic rally, yet the spec and fund long positioning has not expanded rapidly. That leads us to conclude that commercial and physical buyers and not small speculators have primarily fueled the rally. In other words, it seems that the rise in copper was for "real" reasons (meaning classic supply and demand factors). We also suspect that the 2nd half 2005 rally in gold was prompted for "real" or "physical" reasons. Therefore, we would suggest that an extension of copper and gold price gains in 2006 could signal the potential for a rising tide in commodities that should be capable of lifting "all boats". In addition to the symptomatic reaction in the gold and copper, we also think that the world continues to understate the potential long term ramifications of ultra high energy prices and their influence on food markets. In addition to the rapidly increasing use of sugar, corn and edible oils in the energy chain, we also see the potential for natural gas prices to reduce the supply of or make very expensive certain crop inputs in 2006. Therefore, the energy market tide might only have just begun to influence commodities!

BIG PICTURE

In this newsletter we are attempting to give a big picture view on the potential for commodity markets for the coming year, and will also review the performance of the markets so far this season. The enclosed table shows the performance of major commodity markets from December 31st, 2004 through December 13th, 2005. It is interesting to note how commodity markets in general outperformed both the stock market (up 1%) and bonds (unchanged) during 2005. In an era in which investment money is flowing toward hard asset commodity markets, all it takes is a minor bullish setup to experience a major price move. In sugar, for example, the general concept that the world's largest producer may shift a larger portion of their cane crop for ethanol production instead of sugar production helped spark a major buying spree from trend following fund traders who had built up a net long position of nearly 150,000 contracts by late in the year. This is just the buying from trend following systems and does not include index funds. There are millions of dollars flowing into commodity index funds which buy and hold a basket of commodities as a portfolio for security investors in the commodity area. As a result, these funds are classified as hedgers, not speculators, they are not subject to position limits, and their positions show up as Commercials in the Commitment-of-Traders reports. As we go into 2006, several commodity markets look to have significant upside potential. We will review these markets beginning from the bottom of the performance table enclosed. The large number of commodity markets which posted record highs in open interest for 2005 illustrates the increasing interest in commodities overall.

[jreshu]

For free stock tips http://ur.lc/dyv