I have been calling for a base metals bust for some time, fueled by a slowdown in China. Michael Pettis at China Financial Markets has been saying the same thing. Indeed, it is analysis from Pettis that influenced my views in the first place.

Pettis now believes commodity prices will collapse by as much as 50% over the next few years. His rationale is solid.

Here are a few snips from a recent Michael Pettis email in which he outlines the case.

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Mike Shedlock

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.

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3 Comments So Far
Joseph64 Wrote: Sep 05, 2012 2:46 PM
Nope. You're wrong again Mike. What do you think China is doing with a large part of the soon to be worthless foreign currency reserves they have been accumulating from the western countries for decades? Part of that money is going into stockpiling raw materials because they know that continuing to hold large foreign reserves is going to bite them sooner or later when the value of the currency falls. By buying hard assets now, they get more value for their money than if they wait until after the inflation comes and prices rise.
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Blair31 Wrote: Sep 05, 2012 1:15 PM
I don't care. I don't invest.
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Greg1084 Wrote: Sep 05, 2012 7:27 AM
Funny. One of the problems noted in the Great Depression was the accumulation of capital goods and product inventories that out-stripped a demand that was about to fall precipitously, all unanticipated, all fed by artificially low interest rates. Monetary theory was supposed to mitigate this at the level of the Fed, and supply chain management was supposed to fix the production side. No one thought about these things at the level of raw materials and that there is no way to instantly adjust capital to demand in this area without a constant excess supply which would be a willful waste of resources. But wait. Someone will get the bright idea sooner or later.
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