The Risk to Commodities
I still believe we are in the midst of a commodities boom. Taking a page from technical analysts, this commodity cycle started around 2001 and the typical commodity cycle averages 17 years!
The contrary view assumes that a global recession would temper demand for all commodities and I can't argue with this but my predictive ability of a worldwide slowdown or worse isn't the greatest!
In my estimate though, the Fed cannot and will not increase interest rates because of slow growth and a weakened banking system. This won't prevent them from 'jaw-boning' about inflation though.
More interestingly on Nouriel Roubini's blog, he recently discussed how many other central bankers around the world have seen their exports suffer because of the fall in the $US. He believes that many of these countries will turn a blind eye to inflationary pressures and allow their currencies to devalue or keep up withe the devaluation of the $US. A race to the bottom comes to mind!
This concerted effort to gain a currency advantage is never good for inflation and dubious for sustained growth. I foresee these reasons for continued strength in commodities.
Also this article http://www.startribune.com/business/25638719.html?location_refer=Business:highlightModules:1
first posted on the Oil Drum speaks about foodstuff inflation and some of the reasons for it.
posted by Des @ 7/21/2008 10:13:00 AM
2 Comments:
MRK down 11%, WB up 27%, TXN down 14%, FNM up 10%, no down 10% (depending on the hour)!!!
This investing landscape feels like a land mine.
I presume you are following UNG and OIL as direct energy plays?
I graphed the two ETFs and correct me if I'm wrong but does it seem like UNG has been leading OIL recently? It seems to foreshadow OIL movement this year. So the short term play is look for UNG to recover before getting into OIL?
Yes the volatility is remarkable on many levels! I do feel we are closer to the bottom than last December though Main St. USA still has to work through the recession that the US is surely in.
I wasn't aware of the movement of Ng leading oil. I'll have to look more closely at it, but although their is some linkage via their energy content (6 to 1 ratio), the Ng market is more influenced by North American factors (weather etc.) whereas oil is a more global commodity that can be moved by geopolitics.
I think in the future we'll see more of a convergence of energy prices whether it is solar electricity, nuclear electricity, oil BTU or Ng BTU.
I closed out my short term oil play HOD recently, and I don't know which way to play it next ;)
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