“The world is in recession already,” investor Marc Faber

“Bloomberg’s Millie Munshi reports that the flashing exit signs she first detected in the middle of last week in the commodities’ complex have intensified their rhythm this week and could be showing the pivot point we have been alluding to recently. Though we will not know with certainty until about two months from now, the developments are most certainly worth learning about:

“Commodities dropped to the lowest in seven weeks as a stronger dollar and rising equity markets eroded the appeal of oil, gold and corn as alternative investments.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell for a second day, touching 1,527.441, the lowest since June 5. Corn was the biggest loser, dropping as much as 5 percent, and crude oil extended its slide from a record this month, while gold dropped to a two-week low. The dollar rose to a four-week high against yen and gained against the euro as investors increased bets the Federal Reserve will raise interest rates in September. The Dow Jones Industrial Average added 3.6 percent last week, while the UBS Bloomberg index plunged 7.3 percent, the biggest slide since March. Some investors buy commodities as a hedge against inflation.

“It all has to do with the dollar, inflation and interest rates,” said Michael K. Smith, president of T and K Futures and Options in Port St. Lucie, Florida. “With the dollar gaining and less concern about inflation, people don’t want to buy commodities anymore. People are shifting into stocks.”

Shares in Asia, Europe and the U.S. climbed. The MSCI World Index rose as much as 1 percent in New York.

“Commodities were a bubble and stocks were too cheap and now we are seeing a shift in investments,” said Greg Grow, the director of agribusiness for Archer Financial Services in Chicago. “It could be a long time before commodity positions are completely unwound.”

Commodities also dropped today on concern that slumping global growth may curb demand for raw materials. Merrill Lynch and Co. economists yesterday cut their forecast for U.S. growth. China’s economy in the second quarter expanded at the slowest pace since 2005, a report showed last week.

“The world is in recession already,” investor Marc Faber, who forecast the so-called Black Monday stock-market crash in 1987, said today in an interview with Bloomberg Television. “I put out a negative view for industrial commodities for the second half of 2008 and I stick to this view.”

Oil declined as the U.S. government reported a weekly gain in inventories of gasoline and distillate fuels, which include heating oil and diesel. Gasoline supplies increased 2.85 million barrels to 217.1 million barrels in the week ended July 18, the Energy Department reported. Inventories of distillate fuels rose 2.42 million barrels to 128.1 million, the department said in its weekly report.

Hurricane Dolly strengthened over the Gulf of Mexico, and may become a Category 2 storm before making landfall near the Texas-Mexico border, the U.S. National Hurricane Center said today. Oil fell earlier after Dolly was forecast to miss most Gulf oil rigs. The region accounts for 25 percent of U.S. crude production.

Crude-oil futures for September delivery traded at $126.92 a barrel at 11:53 a.m. on the New York Mercantile Exchange after falling as much as $3.11, or 2.4 percent, to $125.31 earlier.

“With the stock market strengthening and oil giving off sell signals, every single commodity is down,” said Ron Goodis, a futures-trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “Interest rates are going higher and that’s a scenario for a drop in commodity prices.”

Gold for August delivery dropped as much as 2.8 percent to $921.70 an ounce on the Comex division of the Nymex. Corn for December delivery on the Chicago Board of Trade slid to as low as $5.6275 a bushel, the lowest since April 1. Copper dropped as much as 2 percent, coffee lost as much as 1.9 percent and soybeans fell as much as 3.3 percent.

“All of these commodities are starting to show signs that the big bull market is over, and the things that people have really made the most money with in the past seven years will start to substantially drop,” Michael Aronstein, president of Marketfield Asset Management in New York, said last week.”"

An excellent review of gold and the commodities markets which includes the above excerpt is at:
http://www.kitco.com/ind/nadler/jul232008B.html

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