Cotton may be the fabric of our lives. But to Chinese speculators a few days ago, it was apparently seen as a golden ticket.
They traded 3.6 million contracts of the fabric last Friday, the most in more than five years, on the Zhengzhou Commodity Exchange. Each contract covers 5 metric tons. So even adjusting for double-counting, we’re talking about 41 million bales of cotton, per Bloomberg.
Folks, that’s enough to make 9 billion pairs of jeans — or enough to give one to every single person on Earth! That wild orgy of speculation pushed cotton prices up 19% in just four days.
But it’s not just cotton. Aluminum trading at the Shanghai Futures Exchange just quadrupled in a matter of days.
Apparently, “expert” investors in China decided they really like steel rebar futures, too. Enough rebar futures contracts traded in one recent day to cover 223 million metric tons. That’s more of the construction material than the country produces in an entire year! Prices soared around 60% as a result.
But wait, you say. Couldn’t this be actual producers or commodity customers looking to hedge against price risk, or lock in future supply?
This is one conference call
Don’t miss Mike Burnick hold Mike Larson’s feet to the fire in an emergency briefing on May 2nd at 2:00 PM Eastern Time. Mike Larson has agreed to detail the reasons why he has released his disturbing new forecast and NAME the companies he sees getting hit the hardest.
Not according to Bloomberg. One analyst quoted by the news service estimates up to 70% of the volume is coming from Chinese retail investors. They’re also only holding these futures contracts for an average of four hours.
Herein lies the fatal flaw of easy money: Central banks can create all the easy, cheap money they want … but they can’t control where it goes! The massive orgy of commodity speculation in China is just the latest in a long line of examples, both overseas and here at home, of easy money-fueled bubbles and busts.
Just last year, China poured hundreds of billions of yuan in stimulus into the markets. Retail investors took the funds and dog-piled into stocks, sending them soaring … only to get wiped out a few months later when stocks crashed.
|The Federal Reserve over-stimulated
the U.S. economy in the late 1990s and again in the early 2000s.
Here in the U.S., the Federal Reserve over-stimulated the economy in the late 1990s. That helped fuel the dot-com bubble and bust. Then they did it again in the early 2000s. That helped fuel the housing bubble and bust. Then they did it again after the Great Recession. That helped create the “Everything Bubble” … which is now starting to bust.
It’s an absolutely ridiculous way to manage economies. But judging from the ongoing actions of central banks here and abroad, they haven’t learned their lesson yet.
As an investor, all you can do is ride these boom/bust cycles for all they’re worth. That’s exactly why I’m doing my best to help subscribers and readers like you do just that. So again, I urge you to …
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Until next time,
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