You have to ask yourself: are they going down because of increased supply, or because of decreased demand?

Increased supply should be good for economy as the increased supply of raw mats cause increased production of higher grade goods.

Decreased demand on the other hand indicates that something is wrong. People are not buying anymore. Can't they afford it any longer? Or or they decreasing production due to anticipated lower demand for their higher grade goods?

I actually agree with you; I was just poking fun at the "high price good, low price bad" tone of the article. Notice the author's apparent relief that a few commodities have "managed to stay out of the bear market" because of bad weather and supply problems.

I've found it's more "high price bad, low price bad". Bull markets come with Malthusian predictions and really strong ones with pictures of the fuel lines in the 1970s.

That's the right question to ask. As far as I can tell, the answer is: both - depending on the comnodity. For oil, it is mainly increased supply. For steel, coal, copper and co. it is probably rather a lack of demand.

Oil is a portion of the price of every other commodity. They all require energy to extract/produce and transport.

There's a third option - there's less speculation now that there was before. AFAIK, most commodities can be paper-traded as well - meaning that traders can buy and sell futures that are not physically settled, but only pay out the current spot price. - i.e. pure speculation. Is it possible that speculators stopped betting on the ever increasing prices of raw materials?

Why does decreased demand indicate that something is wrong? Maybe people don't want those particular goods anymore.

Demand is used as a proxy to measure industrial activity.

Well it could be indicative of a crisis fomenting overseas. The two obvious trouble spots are China and Europe. The Chinese have questionable economic statistics (gathering accurate statistics was never easy to begin with), and who knows what's happening in Europe. One way to get a gauge on things is to measure the inputs, i.e. consumption.

The billion dollar question for those of us living in the U.S. is, if there is a problem, will it spread?

Consumption is still pretty weak in the US as a result of late-capitalism income inequality-- in my opinion, the US will continue with the gradual stagnation we've seen since the crash. This stagnation has been going on for years now, and it constitutes a serious crisis of its own, but the sky isn't falling like in 2008. Until there's another crash, that is. Then, there will be another "recovery" with another large slice of the wealth going to the oligarchs. My completely uneducated and totally invented prognostication for this crash is mid Q4 2015 or early Q1 2016. The biggest indications that a crash is coming are the record high stock values we've seen recently. Relatedly, the SV bubble is going to pop when investors realize that there isn't really that much "disruptiveness" in a lot of the software startups they've been funding.

China's consumption is strong as a result of it being in early to middle stage capitalism, which drastically reduces income inequality, which takes the form of a new middle class(perhaps temporarily). The problem with China involves their middle class's population-level involvement with the stock market. Everyone and their mom is invested into the market, meaning that the commoners are currently losing vast amounts of wealth as a result of the implosion. Whether this ultimately will hurt consumption isn't clear.

Europe might be okay in the medium or long term, but a small crisis is already playing out right now. Greece, while somewhat ameliorated by recent talks, is still a ticking time bomb.

An interesting third case is Japan, which is now having its second "lost generation" in a row as a result of long-term stagnation and demographic issues. Japan is a neglected back-door to the world economy. The coming months could be a much-delayed ultimate collapse or resurgence from the sleeping economic giant, though after decades of horizontal movement it's hard to envision what either would look like.

Interesting times ahead.

s/late-capitalism/crony-corporatism/

We don't have capitalism, we have the joining of government and corporations and they are becoming ever more entwined.

Yeah, but I have to water down the language or else there will be idiots crawling out of the woodwork.

People get all ornery when you call it fascism.

Don't mean to ride you on this point, but proper terms are very important. You can call it corporatism if you think fascism conjures up a black-and-white image of Il Duce, but calling it capitalism sets us back in terms of actually understanding the causes of our current crises, and hampers the already Sisyphean task of teaching people what capitalism actually means: a politico-economic system of laissez-faire and the protection of individual rights.

So, this is not a product of "late-capitalism income inequality"; it is a product of central banking in the U.S. and around the world, and their artificial tinkering with interest rates/the money supply for political expediency.

Isn't the fundamental piece of capitalism privately owned capital? What would we call a system of lasses-fair and protection of individual rights where those rights only included the right to rent capital from the state (not own it).

I believe the proper term is statism, no?

Collusion of big business and the state.

"Late" capitalism, which is to say, capitalism that has been around for a while, mostly is crony capitalism. There is a feedback loop between capitalism and democracy (and probably most other forms of government), a consequence of the positive correlation between wealth and power. A concentration of wealth leads to a concentration of power, which corrupts and degrades the democracy, leading to a further concentration of wealth and power, and so on. This is why treating capital markets as an end rather than a means is so dangerous.

a/k/a fascism

A few thoughts on your comment...

The SV scene isn't like the dotcom days without a business plan. There's a lot of startups now that have revenue from day one, and are cashflow positive. The value is tangible in many cases (not all).

Second, I wonder what impact the tanking China economy will have on the US real estate market. Wealthy Chinese have been parking their dollars in real estate here for a while, and with the stock market seen as more risky now, I wonder if that trend will increase and drive up home prices further.

I agree with you in regards to the SV scene, but it's important to remember that even established firms could sink under the right economic conditions. Sure, there's no obvious pets.com.

As far as the US real estate market goes, I'd say it's possible that people parking their money here in even greater numbers will accelerate the current drive for luxury real estate while causing a shrinking of the middle value real estate market. You also see this in London right now, with tons of new luxury buildings being built and sold off, only to sit empty and used as a value bank. The general effect is that real estate values in general rise sharply and people are forced out of middle-value areas so that they can be redeveloped into ultra-high value areas. These are geographically centered effects, though. I'm really not sure how much it could drive the larger real estate market, which is already as hot as it's been since the crash.

Real estate investments are a bit of a musical chairs game. A temporary positive side effect for anyone who may leverage the gains before the rug is pulled out from the seemingly inevitable market force of the "business cycle" bubbles and waves.

Conversely, if it were investments in infrastructure, businesses, and tangible productive goods that create real world value, we could rest a bit easier.

It could also be indicative of future market moves in other markets too, even if these moves are not crises. The large moves in commodities has been anomalously _uncorrelated_ with equity markets, though historically over long enough windows the two move together. This raises the question of whether this trend has broken or if one (commodities markets or equities) will budge in the direction of the other soon. My crystal ball is too smudgy to know this myself...

Brazil is running into big problems too: http://www.businessinsider.com/brazil-indicators-look-like-2...

Even on Main Street, when an upscale boutique gets replaced by a dollar store that's not a good sign.

When times are good it doesn't feel like stuff's getting cheaper, it feels like people have more money. A crash in raw materials is a bad sign - it likely means companies have stopped buying because they've stopped innovating, or because they think pretty soon people aren't going to be buying stuff.

Due to our banking model in the West when times are "good" it's actually making life worse for our kids as the primary outcome is land price inflation which makes people fell richer but is not for most monetizable.

The big one here is oil.

The markets go down on tumbling oil prices. I mean I see why oil companies go down. It's lower profits and, worse, as oil becomes harder to find the technical cost of extraction goes up. There are I'm sure many fields where the technical extraction cost is pushing if not exceeding $50/barrel.

Yet this is actually good for pretty much everyone else. Oil is one of those things that's an input cost into almost everything.

So why aren't the markets talking about how this is going to be better for particularly high oil consumption industries? Airlines spring to mind.

Actually, side rant: the so-called "fuel surcharge" airlines charge is such a joke. I wish it were illegal. There is no "fuel surcharge". It just costs more than it used to. Put it into the ticket price and be done with it.

Because you know the fuel surcharge isn't going away when oil prices drop.

Gas stations and airline fuel charges have always been first to rise, last to fall. It is confusing when you see oil drop like it has then see the price across the street go up 5 cents tomorrow. Could it be fixed, yes, do they have much incentive to do it...no.

As far as gas stations go - they make most of their money by lagging behind the fall in oil prices. They make an extremely small profit most of the time and a larger profit when oil prices fall.

Gas stations usually operate with the gas almost as a loss leader for the attached convenience store.

In all fairness, Canada and Australia are more or less commodity extraction economies with catastrophically inflated real estate markets. Lower commodity prices could prick that situation and cause some jumbled jonathans.

That is a huge generalization about the Canadian economy. Mining and oil is 8% of the economy. Less than manufacturing and less than services.

https://en.wikipedia.org/wiki/Economy_of_Canada

And 4% less than: real estate!

I would love to see a huge correction in Vancouver but many people have been born and died waiting for it to happen.

Apparently it's an acceptable outlet for dirty cash from shady foreign 'investors', http://www.theprovince.com/travel/Chinese+money+launderers+s...

This is disgusting. London is traditionally the home of money laundering. Sigh. New money has no sense of history.

How much of a correction you're looking for? a 10% sounds very feasible in a down market but a 50% hit sounds implausible esp. in the short run.

Median house for a detached house in the "poor" east side is $1.28 million, $2.9 million in the traditionally more desirable west side. http://www.theglobeandmail.com/report-on-business/vancouvers...

Vancouver is actually one of the poorest large cities in Canada. Average income in Vancouver proper in 2009 was $43,911. https://www.biv.com/article/2014/9/trick-or-treating-planner...

All this means that Vancouver is the 2nd most unaffordable housing market in the world (after Hong Kong) http://www.theglobeandmail.com/news/british-columbia/only-ho....

Accordingly a housing is already so inflated that a 10% drop means nothing. Even a 20% drop wouldn't make things affordable.

In 2008-2011 a 40-60% swing took place in many parts of the US. Arizona, Nevada, Florida all being at the top of the list. The number of foreclosures was devasting to those areas. Vegas, Phoenix etc. were hit extremely hard. Many folks placed keys in the mail box and just walked away from properties -- leading speculators and savvy home buyers to come in at rock bottom and buy their homes on the cheap.

History may not repeat itself but it definitely rhymes.

I don't know about the real estate market for each state you cited but if the market activities were driven mainly by speculation and short term flipping then a 50% dive esp. in a highly leveraged market sounds very plausible but it seems that Vancouver has very sound fundamentals to sustain the higher prices.

> it seems that Vancouver has very sound fundamentals to sustain the higher prices.

Have you seen the pictures?

http://www.crackshackormansion.com/

Not to mention Florida, Nevada, and Arizona had a housing supply glut where you will likely never see one in Vancouver in your lifetime.