Filed under: Trader Dan Norcini
Dear Friends,
Please take the time to carefully examine the following charts and when you do, realize that the commodity sector has now completely erased all of the losses it incurred beginning back in the summer of 2008 when Lehman Brothers collapsed and started the domino effect of a derivative chain meltdown.
The Fed has gotten exactly what it has wished for – deflation is dead and buried but in the process, they have now set the stage not only for an outbreak of inflationary pressures which are going to boggle the mind, but one that can very easily end up in runaway hyperinflation.
Note that the CCI (Continuous Commodity Index) has run to its current level WITHOUT the participation of crude oil which at the time it made its all time high back in 2008 was trading close to $150. It is currently below $90. That is what is terrifying. We are in effect looking at the prices of food and metals in this CCI doing all the heavy lifting in the commodity sector. Heaven help us if energy prices, particularly natural gas which has been extremely cheap, take off.
Note also the separate chart of copper which is now within a whisker of taking out the 2008 high in price.
You will also note that the S&P 500 has effectively retraced all of its losses since Lehman collapsed as well.
What the Fed has accomplished is to push the price of paper assets higher and inflate the commodity sector while the employment picture remains bleak and wages remain stagnant. Oh, and don’t forget, long term interest rates are now rising even as the housing market remains mired in foreclosures and delinquencies.
While the hedge fund world is partying today because China did not hike interest rates again, I suspect that their partying is going to be short-lived. The Bernanke-led Fed has unleashed the inflation monster upon China and if China does not move to try to quell it, they are going to be amazed at how rapidly prices are going to rise in their land. Food inflation in China is a serious political issue and the authorities are going to attempt to nip it, if they can. Short term they can knock prices down but unless the world produces some bumper crops in this next crop year, the trend in food prices is higher. We have a storm brewing globally folks.
Please know that the price of certain commodities is not moving higher because of supply/demand factors. If that were the case, copper would be much lower. Prices are moving higher because speculative hot money flows, created by the Fed and the Western Banking world QE programs, is indiscriminately mangling a host of various commodities. Commodities are now officially back in bubble territory but as long as the easy money flows, they will track higher. It is investment demand, rather hot money flow demand, that is pushing copper higher for example, not demand from the construction end of things. Wall Street in its greed has created a whole cornucopia of ETF’s that are commodity related and that is where much of the demand is coming from.
The nature of these flows is that they are extremely fickle and quite vulnerable to any news or action on the part of monetary authorities to go after the speculators. I am not sure that there is much any of them can do as long as we have free money available for leveraged plays so while the party goes on, enjoy it. Just be careful. Too much of this demand is artificial.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December1310CCI.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310Copper.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310SP500.pdf
Please take the time to carefully examine the following charts and when you do, realize that the commodity sector has now completely erased all of the losses it incurred beginning back in the summer of 2008 when Lehman Brothers collapsed and started the domino effect of a derivative chain meltdown.
The Fed has gotten exactly what it has wished for – deflation is dead and buried but in the process, they have now set the stage not only for an outbreak of inflationary pressures which are going to boggle the mind, but one that can very easily end up in runaway hyperinflation.
Note that the CCI (Continuous Commodity Index) has run to its current level WITHOUT the participation of crude oil which at the time it made its all time high back in 2008 was trading close to $150. It is currently below $90. That is what is terrifying. We are in effect looking at the prices of food and metals in this CCI doing all the heavy lifting in the commodity sector. Heaven help us if energy prices, particularly natural gas which has been extremely cheap, take off.
Note also the separate chart of copper which is now within a whisker of taking out the 2008 high in price.
You will also note that the S&P 500 has effectively retraced all of its losses since Lehman collapsed as well.
What the Fed has accomplished is to push the price of paper assets higher and inflate the commodity sector while the employment picture remains bleak and wages remain stagnant. Oh, and don’t forget, long term interest rates are now rising even as the housing market remains mired in foreclosures and delinquencies.
While the hedge fund world is partying today because China did not hike interest rates again, I suspect that their partying is going to be short-lived. The Bernanke-led Fed has unleashed the inflation monster upon China and if China does not move to try to quell it, they are going to be amazed at how rapidly prices are going to rise in their land. Food inflation in China is a serious political issue and the authorities are going to attempt to nip it, if they can. Short term they can knock prices down but unless the world produces some bumper crops in this next crop year, the trend in food prices is higher. We have a storm brewing globally folks.
Please know that the price of certain commodities is not moving higher because of supply/demand factors. If that were the case, copper would be much lower. Prices are moving higher because speculative hot money flows, created by the Fed and the Western Banking world QE programs, is indiscriminately mangling a host of various commodities. Commodities are now officially back in bubble territory but as long as the easy money flows, they will track higher. It is investment demand, rather hot money flow demand, that is pushing copper higher for example, not demand from the construction end of things. Wall Street in its greed has created a whole cornucopia of ETF’s that are commodity related and that is where much of the demand is coming from.
The nature of these flows is that they are extremely fickle and quite vulnerable to any news or action on the part of monetary authorities to go after the speculators. I am not sure that there is much any of them can do as long as we have free money available for leveraged plays so while the party goes on, enjoy it. Just be careful. Too much of this demand is artificial.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December1310CCI.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310Copper.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310SP500.pdf
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