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HomeCommodities Growling Like a Bear
Posted by Larry Doyle on June 1st, 2010 2:48 PM |
Does anybody have any doubt that the equity markets are heavily manipulated by the banks and Uncle Sam? I didn’t think so.
The same clearly holds true for our credit markets, primarily the Treasury market. That said, the commodities market, in my opinion, is much more closely aligned with the real economy. What have commodities done over the last few years? The DJ-UBS Commodity Index was up a mere 16% in 2009 and is down 10% so far in 2010. Over the last two years, the index is down approximately 50%, significantly more than most major equity averages.
What are commodities telling us currently? Let’s navigate. (more…)
May 15, 2010: Market Week in Review
Posted by Larry Doyle on May 15th, 2010 6:12 AM |
The European Union, the European Central Bank, and the International Monetary Fund (and the Fed, as well, although they don’t want to truly highlight it) provide $960 billion in backstops for the Euro-zone and what happens? The Euro ends the week lower by 3%!! Ladies and gentlemen, that is nothing more than a major “F&%@ Y#&“ on behalf of global investors to the aforementioned central banks and government entities.
Think there is tension in Euroland, and specifically between France and Germany? As The UK-based Telegraph reports, President Nicolas Sarkozy ‘Threatened to Pull France Out of Euro’:
President Nicolas Sarkozy slammed his fist on the table and threatened to pull France out of the euro at a meeting of European leaders deciding Greece’s aid package last Friday, according to Spain’s El Pais newspaper.
The last time there was this kind of tension between these countries, guess who was coming ashore at Normandy? (more…)
Think China, Think Commodities, Think U.S.
Posted by Larry Doyle on January 26th, 2010 12:11 PM |
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.
Trading commodities is a very challenging game. From oil to grains to precious metals, the fundamentals and technicals are impacted by an array of factors. How does one forecast weather patterns three months out and the impact they will have on prices? Trading commodities is certainly not easy – and definitely not recommended as a hobby.
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.
When I think China, I think commodities . . . and then I think our markets will fall in line accordingly.
LD
What’s the Market Telling Us?
Posted by Larry Doyle on December 11th, 2009 9:38 AM |
In the face of generally positive economic news the last two days, (Retail Sales this morning rose 1.3% and the improving Trade Deficit), the price action in the market is very interesting. What is it telling us? Let’s navigate.
With the U.S. Dollar Index having firmed over the last week, money does not appear to be coming out of the equity markets. The major equity averages are up anywhere from .5 to 2.5% on the month. What market segments are feeling the bulk of the pain? Government bonds and commodities, primarily oil and gold.
Interest rates on U.S. government bonds have continued to move higher as Treasury supply this week has not been well received. With rates on 10yr U.S. Treasurys higher by .35% over the last ten days, it would appear that market participants continue to believe the Fed will be forced to raise rates or make other moves to lessen the support and stimulus provided to the economy.
If rates are to move higher, our dollar should find support . . . and it is, as the U.S. Dollar Index remains above the 76.00 level. While dollar strength had been a harbinger of general weakness across almost all risk-based asset classes, the commodity sector is bearing the brunt of the pain currently.
The DJ-UBS Commodity Index has declined by 2.5% on the month led lower primarily by oil (down approximately 10% on the month) and gold (down 4% on the month).
Add it all up and what does it mean? If our domestic economy is in fact stabilizing, then the public at large and investors will compel the Grand Old Man, that is Uncle Sam, to back away from continuing to provide stimulus. As that occurs, the market may begin to normalize to levels at which private investors care to put money to work. At this juncture, investors are saying interest rates are not attractive at current levels. As interest rates rise, that may actually temper an economic rebound, especially in housing.
So be it. It is not realistic for market participants “to have their cake and eat it too.”
LD
Dollar Carry Trade Remains in Vogue
Posted by Larry Doyle on December 4th, 2009 3:47 PM |
Today’s price action in the markets is very telling. What is it telling us? The dollar carry trade remains in vogue and technicals continue to dominate overall flows much more than fundamentals. Let’s navigate.
Recall that the weakness in the U.S. dollar has facilitated a large number of hedge funds, market speculators, and to a less extent investors to borrow dollars and buy a variety of risk based assets. What assets? Equities, a wide array of bonds, a basket of commodities, primarily gold. How are these sectors performing?
After an initial spike of 1-1.5% across the equity markets, these major market averages have retraced and are now effectively unchanged to slightly better on the day. Is that a sign of investors not believing in the details of the employment report? No, anything but. In fact, I believe the equity performance today is quite strong given the fact that the dollar has increased by 1.6%.
Bonds have traded in a very narrow range. Interest rates moved higher by approximately 12 basis points (.12%) and have sat there almost all day. The question that now comes back front and center is when the Fed will decide to raise rates. While most analysts had written off the possibility of an increase in rates prior to 2011, now analysts are projecting that the Fed may raise rates by mid-2010.
If rates do rise here, what does that do for our greenback? It will do better and it is doing just that today. As I referenced the U.S. Dollar Index has increased by 1.6%. (more…)
