The head fake from the U.S. $ really spooked the leveraged folks in the commodity's markets, but some of those markets had gotten WAY ahead of themselves and now it would appear have gotten WAY behind - again.
The race to ZERO by the major currencies is still on. The U.S. $ simply must give up much of its purchasing power, and American's much of their lifestyle, if the U.S. is to balance its budget & trade deficits. There will be more head fakes along the way. If I could call them with any accuracy, would not need my day job... but the long term structural issues are there for all to see.
Housing will not be "bottoming" in 2009. It may hit bottom in 2009, or 2010, 2011, or 2012 for that matter, and stay there for 10 or 20 years. Hitting bottom and "bottoming" are 2 different things, aren't they? "Bottoming" implies a return to an upward trend in prices, an outcome I would have serious doubts about.
Commercial property values are also about to be "marked to market" in a most unsettling way.
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Commodities are all about Oil. Oil, in US$ terms, is all about interest rates in the U.S. If the Fed decided to bring Oil to $80 or less, they could do it. A 5% Fed Funds rate would do the trick nicely. On the other hand, a 5% Fed Funds rate would demolish the banking industry and slaughter the housing market and bring the the U.S. into a 1930's level recession. Hardly worth the price of "cheap" Oil, wouldn't you say?
If the Fed keeps the Fed Funds rate at 2% through 2009, Oil will likely head over $150 in 2009.
On the OTHER other hand, if Oil imports into the U.S. decline by another 7.5 % in 2009 from 2008 (as they have so far in 2008 from 2007), Oil prices will likely top $150 irrespective of the Fed Funds rate.
Keep your eye on the data. And then, question the data.
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I am looking forward to the EIA Oil inventory numbers tomorrow, even though the EIA has been AWFUL of late in reporting accurate data (just look at Nat Gas inventories and production data. They simply do not add up under any circumstance). The problem with AWFUL data collection and reporting, is that at some point the "truth will out" and the swings in the market to adjust for incorrect assumptions will be something to behold - IF you are on the right side of the trade.
Good Luck
Mentatt (at) yahoo (d0t) com
4 comments:
Hope you are not getting too affected by the latest tropical storm/hurricane. Hang on to something solid man :0--=
Good luck,
Chuck H.
http://www.nytimes.com/2008/08/19/business/19oil.html
"The scope of the supply problem became more clear in the latest quarter when the five biggest publicly traded oil companies, including Exxon Mobil, said their oil output had declined by a total of 614,000 barrels a day, even as they posted $44 billion in profits. It was the steepest of five consecutive quarters of declines."
This article screams PEAK, PEAK, PEAK!
The oil numbers must have come out, but the oil prices haven't moved. So what does this tell us?
Chuck:
All is well here. We only got the tail end and 30 mph winds. Didn't even lose electric. 3 years ago we lost power for 5 WEEKS. I have personal experience with power down.
Dear Anon:
I have no idea what that tells us. What do you think it means?
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