Jim:    What's killing the commodities?... And when will it stop?...

Everything from steel to coal to fertilizer to copper to oil and natural gas... has been absolutely crushed. And I hate to say it, but on a clear day, I see no end to the carnage...

Oh, we've got a ton of excuses to this brutal selloff, but I believe the chief reason is the total disappearance of China as a buyer for practically everything...

So much money was bet on the fact that China would never walk away... They have.

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You want to know why oil is going down? I say don't blame the fact that the hurricanes missed the Gulf... Don't blame the fact that the speculators are liquidating, although they are... It's a lack of Chinese demand, and the same is true for every other commodity...

We all built big inventories, because we thought China wanted them. As long as China's slowing now, and money there is tight, then the commodities and everything that's connected to them - including the infrastructure stocks, and anything that gets it out of the ground, and even the rails... they will get polaxxed... more, more than they have...

We've got a worldwide slowdown. It's courtesy of a ridiculously tight European Central Bank and the Bank of England (BOE).

You know what?... As it turns out... we're not the only ones... "They know nothing!... " This is a big problem... But China, which was always a big source of demand... and now, that demand is dried up... is just annihilating us...

Now look, we helped kill demand for oil with $4 (a gallon) gasoline, where no one was pumping, but we weren't as big a player as the marginal buyer in China... the veracious Chinese...

We also see OPEC not cutting back, and that doesn't help...

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But how about this new negative to lop on top of China... and this is one that is just beginning to seep into the consciousness... I think it'll be the first time you've heard it out loud...

It's now that McCain is in the lead, there's a sense that we're going to drill, drill, drill... and, if we drill, drill, drill, that means more supply and lower prices...

Remember, I always said that oil would keep going up, until we found a lot of oil... or people thought we would find a lot of oil, and that would cause the oil price to fall... and I think that may be also what's happening, if we drill like mad under a McCain presidency...

I think oil could slice through $80 (a barrel) and gasoline through $3 (a gallon at the pump), and maybe $3.25, in very short order, judging by this market... You won't see a turn, until you see the drillers turn, because that will be a sign that the McCain plan is going to be in action... certainly the Pickens/McCain plan.

More important to the long-term lack of health in the oil market is the domestic competition. Well, suddenly, in three years, we have huge discoveries of natural gas, right below the seemingly endless mounds of shale we have all over this country... I have to tell you, I think the darn stuff is too plentiful... All of the traders watch CNBC... they watch the Boone Pickens' advertisements...

Now, if we could run our cars on this stuff, that means we have a huge surfeit of natural gas... which is causing the stocks to trade down, as if the commodity will drop $2 bucks to $5... Boone, we're with you, but you have done such a good job of convincing us that natural gas is so plentiful, that we've stopped worrying about shortages, and we've started worrying about how low natural gas futures, and therefore the stocks, will go. I don't know... I think both of them - the stocks and natural gas - could head a little bit lower... I say "a little bit" because I think they far, far exceeded where I think they will ultimately go.

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Now people are blaming the young gun hedge funds that went heavy in commodities, and are now getting out of the business. I mean people are saying that they are causing the collapse in the commodities. No... They are causing the collapse of the stocks. The stocks are going down hard because of their redemptions. And while I don't believe that that's the reason for the commodities' futures collapse, I do think it's the reason for the endless and voracious selling of great stocks, well in excess of the underlying commodities. These young guns don't know how to trade. They're too young to know how to get out of a position over time, and also they don't know how to control their investors, and they definitely can't control their stock positions.

The young gun managers explain the speed of the commodity stocks' collapse, but that's just part of the story... These managers are "fire-sale"-ing everything everyday, because they have to return the money they've been playing with... That's why the velocity of the decline is so breathtaking. And I will tell you... I have been trading stocks since 1978, and this is the fastest I've ever seen quality companies plummet...

These hedge fund managers manage their clients' funds like it was Monopoly money... But it was real to the customers... and the customers want these funds to not pass Go... and certainly not collect $200.

Now, if this happened to some other group of stocks, there might be some buyers coming in, trying to catch a bottom, or fish for value... but not with the commodity plays. These stocks either have no dividends, or dividends too small to make up for the losses everyone expects them to take...

You see, basically, you have the commodity stocks being thrown out of the airplane by these young gun hedge fund managers, and none of them has a decent dividend for a parachute to halt the decline.

Look, I own some of these for my charitable trust... it's a small percentage... it doesn't matter. They're hurting my charitable giving abilities. What am I doing? I'm telling people, step aside, let them go lower... But this part - the small percentage of my trust - is overwhelming anything good I have...

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How low can these stocks go?...

In the most bearish scenario that I can envision, where nothing good happens to stem the declines, I think we could see a complete repeal of the "rest of the world"/"Brazil, Russia, India, China" (i.e., "BRIC") that started in April of 2005... A total repeal in the worst case...

If the bears are right, and minerals, oil, infrastructure and steel could all be set back more than three years... that's if you believe that these stocks have only traded up on the value of the commodities they make and build... and haven't created any value. But it's very there's no value created in a lot of the tech stocks...

So that means, when it comes to the declines... well, I'm being a little facetious when I say, we've only just begun... because the declines have been amazing...

If the prices of these stocks go back to April of 2005, we're talking about a further decline... get this... let's take CVRD (RIO), the great Brazilian mining company... 68%... X could get cut in half still, and repeal the whole gain... the coals cut in half... the integrated oils and the natural gas producers could still go down 30%...

Now here's one that's really just so bearish... The fertilizer stocks could fall 80-90%, if we gave up the gains they made from April of 2005... if we repealed the move caused by the global economic expansion. Now I regard that obviously as the worst case. It's pretty darn horrible for Potash (POT), Mosaic (MOS) and Agrium (AGU)... I'm glad we turned negative on those, but we weren't negative enough...

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I have a bunch more examples of what would happen if you repealed everything back to April of 2005... I want to emphasize to you, if you just go back and look at where the stocks were in April of 2005, on Yahoo! Finance, you will see how low these stocks could go, if the bears are right... remember, if the bears are right...

On this show, we always remember that, sometimes, things can go right... hence the bottom that we think in the financials on July 15th, intraday...

So what would put a stop to the commodity collapse, or at least blunt the impact of the hedge fund selling? We need the central banks to roll over, especially China and the European Central Banks... to cut rates. Once again, the Fed and the Bank of England, and the Central European Bank... they're totally behind the curve... Only this time, the Chinese communists - who had long been the best capitalists in the world - are making the same dumb mistakes that our Federal Reserve made last year!

If China could come back... if it could recover... then we'll look back and see these prices as gifts. If we just see some stabilization of Chinese orders, things could get less bad... But, without China, you have to believe that the commodity collapse has the potential to bring down the whole market, because they're now so much apart of the S&P... Yeah, they got that big. A takeover or two wouldn't hurt either. But all of the potential acquirers seemed too stunned to take any action.