Commodity bloodbath

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machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Commodity bloodbath

From its Tuesday close of 602.29, the Continuous Commodity Index has fallen by 5.5% at midday Friday. Not coincidentally, the Shanghai stock market got whacked for over 5% earlier Friday.

This leaves an ominous-looking failed double top on the CCI chart, with this week's high falling just over one percent short of the July 2008 record high.

http://futuresource.quote.com/quotes/chart.action?symbol=CI+A0&chartMinutes=&chartAggregation=W

Dollar strength is contributing to the headwinds for commodities. It's not so much that the dollar is strong, but rather that the euro is weakening on sovereign debt fears.

As this chart shows, the US dollar index fell to a low of 75.88 the day after Bozo Ben announced QE2, then promptly reversed and headed uptown.

http://futuresource.quote.com/quotes/chart.action?symbol=DX+A0&chartMinutes=&chartAggregation=D

So did long Treasury yields, which printed a key reversal on the very day of the QE2 announcement, and have risen 30 basis points since the day before Bernanke's Folly.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tyx&sid=0&o_symb=tyx&freq=1&time=4

Pity the poor central planner -- trying to keep all these spinning balls in the air, when he has only tool -- his POMO bat -- to lunge at them with. 

Give up, Ben -- you're doin' more harm than good, buddy!

I told you so beforehand, but you wouldn't listen. Frown

yobob1's picture
yobob1
Status: Silver Member (Offline)
Joined: Apr 20 2009
Posts: 132
Re: Commodity bloodbath

In the aftermath of the 1920's it was the investment trusts that received significant blame.  How will the ETFs fare when we ultimately do the autopsy?  My gut is screaming that they could fuel a rush to the exits on many things.  Of course the cause might be the raw onions I put on my chili.

Pity that Benny may be the most surprised by the unintended consequences of his actions.  Further proof that awarding degrees to simian dolts is dangerous business indeed.  Hopefully MIT has ceased the experiment wherein groomed chimps are awarded economic Ph.D.s and released into the wilds of the East Coast.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Commodity bloodbath

'Hmmm ... aren't our mid-curve open market operations going
to increase negative convexity? Your thoughts, gentlemen?'

yobob1's picture
yobob1
Status: Silver Member (Offline)
Joined: Apr 20 2009
Posts: 132
Re: Commodity bloodbath

 

Investors are holding their biggest positions on record in the commodities markets as prices surge and debate intensifies among U.S. regulators about whether to limit the amount that any one trader can bet in markets for energy, metals and agricultural products.

Hedge funds, pension funds and mutual funds dramatically ramped up their holdings in everything from oil and natural gas to silver, corn and wheat this year. In many cases, the number of contracts held for individual commodities now far exceeds the amount outstanding in mid-2008, the last time commodity markets were soaring to records and debate raged about whether excessive speculation was driving up prices.

Contracts held by investors have risen 12% this year through October and are 17% higher than June 2008, according to data from the Commodity Futures Trading Commission, the market regulator.

http://globaleconomicanalysis.blogspot.com/2010/12/investors-hold-bigges...

I have said for a year or so that this commodity bull (sh*t) had a speculative feel that was "worse" than the infamous 2008 spectacle.  It seems my gut was spot on.  This won't end well. 

There is also some good stuff regarding J.P. Morgan and the frenetic silver market.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3157
Re: Commodity bloodbath

yobob

Quote:

There is also some good stuff regarding J.P. Morgan and the frenetic silver market.

I like Mish's take on the supposed JP Morgan short squeeze.  In fact, my experience is that short squeezes never happen.  There are always a lot of internet rumors and people pile into whatever investment vehicle is the subject of the imaginary squeeze, but then there is no squeeze and early longs sell and walk away laughing.

In the case of silver, the real price drivers are and will continue to be increasing scarcity of the metal for industrial uses and the flight to safety.

Doug

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