The Bear Market in Commodities: Canary in the Coal Mine? - Source: BlackRock International
For many traders, it was a shock to see the barrel of oil collapse to 12-month lows in June, despite an agreement from producers to cut supplies. However, not many people are talking about the falling prices in other commodities, as well as the positive impact of low oil prices on global growth. So why is a barrel of West Texas Intermediate still trading for below $50? The problem is not just due to oversupply, but also to a slowdown in the growth of Asian demand. Chinese demand has supported prices for the past decade, as demand in developed markets has reduced thanks to increases in efficiency, substitution, and technology. However, China’s stockpiles have risen to 511 million barrels in capacity, just below the 693 million barrels the United States held in March. Chinese industrial demand is also falling, due to rebalancing away from the industrial sector and toward services. But oil prices, in this context, are just a symptom of a much more severe illness: the excess debt and overcapacity created in China to support an unsustainable growth model. In the first five months of 2017, China has added more debt than the United States, United Kingdom, European Union, and Japan combined. While GDP growth looks healthy as is, it appears weak and potentially dangerous when compared to the increase in the money supply. As the old economy tapers off, fewer and fewer raw materials will be needed for production.
Chisinau - Moldova, June 23rd 2016 by Pascal Simon , CEO BlackRock RUSSIA
Last week saw a flurry of news reports that Putin's Russia could "steamroll" NATO forces in just five days, winning a quick victory in the Baltics that would drag Estonia, Latvia, Lithuania — and perhaps even Poland — kicking and screaming behind a new Iron Curtain.Is it really possible that Russia, a shadow of the former Soviet Union, could accomplish this? As always, the truth is more complicated. Michael Carpenter, deputy assistant secretary of defense for Russia, Ukraine, and Eurasia, told Congress he agreed with a think tank study that concluded NATO could not currently defend the Baltic States against a lightning Russian military campaign. The report says the three tiny countries, which collectively muster 11 battalions of mostly lightly armed troops, are no match for the 46 battalions of tanks, mechanized infantry, paratroops, marines, artillery, surface-to-surface missile, and attack helicopters Russia has stationed in the region. Traditionally, in order to have a reasonable chance at victory, attacking military forces require a three to one numerical superiority ratio. The current ratio in the Baltics is more than four to one — and are mostly heavier tank and mechanized forces, with greater firepower and tactical mobility.
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