Sense on Cents

Many eyes are focused on the grilling of Treasury Secretary Geithner on the Hill.  Have we learned anything new? Not really. Geithner is maintaining that he and others within the New York Fed and the Federal Reserve operated within the best interests of the American taxpayer because they were working to save the system. Numerous Congressmen are drilling Geithner on his actions to pay creditors 100 cents on the dollar.

Having watched this debate this morning, in my opinion we will not receive any real clarity or clear cut winners. I do find it laughable that Geithner asserts that the Treasury has promoted unprecedented levels of transparency under his leadership. Neil Barofsky, head of SIGTARP, and Elizabeth Warren, the TARP watchdog, have highlighted the extensive lack of transparency by Treasury under Geithner.

In regard to the markets, while equities are down slightly and bonds are largely unchanged, what is the market that is moving? Commodities generally and copper specifically. As I highlighted yesterday in writing, “Think China, Thick Commodities, Think U.S.”:

China led the overall market higher in 2009. With China now restricting credit, will it lead to a global selloff in 2010? How do we monitor this situation and most effectively navigate the economic landscape? We can keep a close eye on the Chinese stock indexes, but I think we are better served monitoring the commodities markets. Given that China is still in the very early stages of an industrial revolution, the demand for commodities within the People’s Republic of China is extraordinary.

If China is curtailing lending (and it is), then I believe the market segment which will be most immediately impacted is the commodities space. While our equity markets are marking time today, how are commodities doing?

Let’s look at the DJ-UBS Commodity Index. We see that the index is not only down 1% on the day, but down 8% from the 52 week high achieved on January 6, 2010.

Let Congress and Geithner beat each other to a pulp.  Meanwhile, let’s focus on the commodity markets. How are they doing?

Not very good. Commodities are down another 1% again today, led by copper which is down 1.5%.  Hmmm . . . China’s lessened credit availability lessens industrial demand. That in turn lessens commodity prices, which in turn lessens equities in sympathy. That’s what I’m thinking.

2:15pm update: Commodities index down 2%, copper down 4%..OUCH!!

LD

This entry was posted on Wednesday, January 27th, 2010 at 12:25 PM and is filed under AIG, China, commodities, copper, General, Tim Geithner. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.