Stocks and commodity prices due for a correction

[hayekvindicated]

While I believe that we are heading for very high inflation long term in the US and the UK, the current rally in commodity prices is liable to reverse soon.

I spent some time talking to physical energy traders today. The head trader said that while the physical market is inundated with supply (he was talking of oil), the paper market has become totally disconnected with the physical and speculation has just run amok. So who is running up the prices? He thought that the prop traders in major investment banks are doing this. Funny that - the banks get taxpayer money and what do they do with it? They start bidding up the price of energy. :eek:

There is no knowing how much further this current rally will run. What is clear is that the market is front running inflation - real inflation has not really occured yet. So there is a lot of super speculative money from hedge funds and banks pouring into the commodity markets. Once the stock markets correct (which they are liable to soon), the commodity markets should correct too.

All of this means that the Dollar may have another rally soon. Gold buyers watch out!

[phirang]

Re: Stocks and commodity prices due for a correction

Fed has pulled $40B of liquidity this week alone.

Another week of that, and commodities are going to get crushed.

[flintlock]

Re: Stocks and commodity prices due for a correction

I think a lot of people feel the same way, only they are afraid to sell their commodities and be caught with their pants down when the inevitable inflation hits.

[WildspitzE]

Re: Stocks and commodity prices due for a correction

While I believe that we are heading for very high inflation long term in the US and the UK, the current rally in commodity prices is liable to reverse soon.

I spent some time talking to physical energy traders today. The head trader said that while the physical market is inundated with supply (he was talking of oil), the paper market has become totally disconnected with the physical and speculation has just run amok. So who is running up the prices? He thought that the prop traders in major investment banks are doing this. Funny that - the banks get taxpayer money and what do they do with it? They start bidding up the price of energy. :eek:

There is no knowing how much further this current rally will run. What is clear is that the market is front running inflation - real inflation has not really occured yet. So there is a lot of super speculative money from hedge funds and banks pouring into the commodity markets. Once the stock markets correct (which they are liable to soon), the commodity markets should correct too.

All of this means that the Dollar may have another rally soon. Gold buyers watch out!

Agreed.

My stops have been hit on several large positions I have re: miners both big and small. The stops were obviously a little on the tight side given the view I just expressed above, but nonetheless: folks, don't forget risk management!

I'm going to spend the weekend thinking of where I'm going to put my stink bids in, along with more general re-entry points.

[BadJuju]

Re: Stocks and commodity prices due for a correction

I bought gold and silver at $896 and 11.91 respectively. And I intend upon holding them come hell or high water. Inflation is inevitable; however, the path to it may veer off in many directions before realigning with its destination.

[sishya]

Re: Stocks and commodity prices due for a correction

Fed has pulled $40B of liquidity this week alone.

Another week of that, and commodities are going to get crushed.

Phirang,

Is this going to be the modus operandi for the US Govt to force users to buy treasuries in the future.

Remove liquidity and Crash everything, so that people will move to money market funds, which means buy US Treasuries ?? Is that how the Big US Budget deficeit is going to be financed ? Make everyone think that getting 2% in US Treasury is better than loosing Principal in other assets.

[metalman]

Re: Stocks and commodity prices due for a correction

Phirang,

Is this going to be the modus operandi for the US Govt to force users to buy treasuries in the future.

Remove liquidity and Crash everything, so that people will move to money market funds, which means buy US Treasuries ?? Is that how the Big US Budget deficeit is going to be financed ? Make everyone think that getting 2% in US Treasury is better than loosing Principal in other assets.

the reverse of sinking the rafts?...

Sink the rafts

The government gods want to entice capital out of low risk assets like government bonds and into risky assets like stocks. If that cannot be accomplished by making government bonds appear more risky than stocks, why not do it the other way around? Let us return to our Japan “bond bubble” example.

Japan’s 10-year bonds completed their biggest decline in a month after rising Asian stocks reduced demand for government debt.

Bonds slid for a fifth day, the longest losing streak since July 2007, after U.S. shares rallied yesterday when Treasury Secretary Timothy Geithner said the government will step up efforts to fight the recession. Demand for debt also waned after the Bank of Japan said yesterday it will start buying equities owned by financial institutions to shore up their capital. - Japan’s Bonds Complete Biggest Drop in a Month as Stocks Rise, Theresa Barraclough, Bloomberg, Feb. 4, 2008

Statements like the one below used to shock us, but not anymore. In the desperate global scramble by governments to re-inflate asset prices, anything goes.

“We are facing hyper-deflation, so we need a policy to create hyper-inflation. We have to do something to undermine the central bank and government’s credibility or else we won’t be able to halt the yen’s rise. So, while we know this is drastic medicine, we will do it,” said Koutaro Tamura, an upper house Diet member who will chair the new group. - MPs step up clash with Bank of Japan, Michiyo Nakamoto in Tokyo, Financial Times, Feb. 5, 2009

If you wonder what is going on in Japan to inspire Japanese politicians to make public promises to override that nation's central bank, you have not been following Japan's stunning economic collapse.

The numbers coming out of Japan are no longer about degradation, but historically unprecedented destruction. If the government pointers are correct, they are no longer suggesting a recession or even a depression of the style of the 1930s but something like a massive "Reset button" with very different and far-reaching consequences. This downward spiral is much faster, much more synchronised, resulting in an impact equivalent to one year's worth of declines in the 1930s on a monthly basis, month-in month-out. It is as if the whole country has been visited by an army of King-Kongs, who are busy destroying the industrial output.

Japan's industrial production fell almost 10% in December compared with November, worse than the METI (Ministry of Economy, Trade and Industry) forecast. METI has re-done its forecasts for January to a 9% drop, and February down another 5%. That knocks almost 30% output since September, putting it back, at the level of the early 1980s. It took 25 years to reach levels that have been unwound in five months. For carmakers, production may fall by around 50% from last year in 2009. There has never been data this bad for any major economy: even during The Great Depression of the 1930s. If METI's January and February industrial production data is correct, the proportions are apocalyptic. Masaaki Shirakawa, Bank of Japan Governor, recently warned, “The outlook for the Japanese economy has deteriorated dramatically and there is a high probability that it will continue to do so.” more...

There you have it, a way to get to get frightened investors out of government bonds and back into stocks if all else fails -- central banks around the world print money and buy stocks -- and a motive to do it, a rapid global economic contraction.

No such thing as a Treasury bond bubble - Eric Janszen

[cjppjc]

Re: Stocks and commodity prices due for a correction

I bought gold and silver at $896 and 11.91 respectively. And I intend upon holding them come hell or high water. Inflation is inevitable; however, the path to it may veer off in many directions before realigning with its destination.

THAT'S WHAT I'M TALKING ABOUT.:cool:

[phirang]

Re: Stocks and commodity prices due for a correction

Gold has been getting double-fisted recently. I wouldn't be shocked to see it break 900 if we got some serious dollar strength.

However, the big downside remains in oil, which is just asinine-ly overpriced.

Son of the Great Austrian, thank you for confirmation from physical traders. I do have a short oil position, fwiw, and so it's nice to know the real money is on my side this time!

[marvenger]

Re: Stocks and commodity prices due for a correction

but if they're not encouraging real investment they're not really getting money into risky assets. the sellers of stocks at higher price are just going to stay in cash or commodities depending on their inflation outlook. They have to get the consumer spending, the working stiff consumer doesn't own stocks.

from what mike whitney is saying the stock and commodity prices are being pushed up and the cash printed that is sitting somewhere, mostly in banks, is going to be borrowed by gov to spend to create demand.

This is purely sick and wholly unsustainable. wtf????

I'm still more aligned with steve keen on deflation though, they're managing to get some more inflation out of squeezing the last bit, hopefully, out of the debt backed money system, but once its over i don't think they're going to literally print to the extent necessary to keep enough money flowing to keep the prices rising.

[Basil]

Re: Stocks and commodity prices due for a correction

I'm still more aligned with steve keen on deflation though, they're managing to get some more inflation out of squeezing the last bit, hopefully, out of the debt backed money system, but once its over i don't think they're going to literally print to the extent necessary to keep enough money flowing to keep the prices rising.

I think EJ has shown rather clearly that they already have and have every intention of continuing to do so, but the real inflation will show up at the end of 09, beginning of 10.

[marvenger]

Re: Stocks and commodity prices due for a correction

literally printed? how much has been literally printed so far in comparison to new gov debt? Steve keen is saying that politically US wont get to the stage where printing is the main tool to keep money flowing, therefore deflation. I don't count myself an expert but I respect Steve Keen and haven't heard much discussion around this point.

Steve believes to generate inflation from here, who knows how long the the tax payer can keep being screwed though or some new ponzi scheme though, you need a fiat system. I think his reasons for there not going to be a fiat system are probably quite similar to iTulips political reasons for there not going to be hyperinflation in the US.

[kartius919]

Re: Stocks and commodity prices due for a correction

We talk alot about energy and precious metals, but what concerns me the most right now are grain prices. Will there be a correction in ag as well even with the low supplies and shortages across the globe? I just can't see grains falling this year with increasing demand from rising population against a falling '09 crop yield. Thoughts? I keep thinking back to the food riots just a couple years ago. Now coupled with falling economies, the immediate futures looks awfully dark.

[hayekvindicated]

Re: Stocks and commodity prices due for a correction

I bought gold and silver at $896 and 11.91 respectively. And I intend upon holding them come hell or high water. Inflation is inevitable; however, the path to it may veer off in many directions before realigning with its destination.

I won't sell an ounce of gold given the state of Her Majesty's Government's finances.

I think another bubble that will pop soon is the incipient bubble in Sterling. Its had an enormous rally recently and its driven by speculative money betting that Britain will be first out of the recession. There may well be a minor pick-up in economic activity short term (because of massive government spending) which may sustain the rally in Sterling. However, this ridiculous run-up in Sterling will halt and then reverse violently at some point.

I've been burnt by the Sterling rally. With a significant cash amount sitting in the bank in March, I had no option but to "do something" given how much Sterling had been sliding. So I bought US$ with it to wait and see. The Dollar then started sliding so I bought gold (at $919). In Sterling terms, I am down 15 percent on my cash amount.

But Im not selling any gold. I won't, however, buy any more gold just now. I'll hang on to my cash and wait and watch.