Posted on 01/08/2011 3:14:10 AM PST by TigerLikesRooster
Gold, Commodities Divergence Against Baltic Dry Index Trend
Commodities / Commodities Trading
Jan 07, 2011 - 05:38 AM
By: Anthony_J_Stills
For weeks now I have been going on about the divergence between the commodities prices and the Baltic Dry Index as the former rallies while the latter sinks almost daily. Last night was no exception as the Baltic Dry Index took another big dive as you can see here:
The Index dropped another 72 points, after a 5% drop the day before, to close at 1,622. This is a second consecutive close below the 2010 low of 1,700 and a confirmation of the break.
In spite of being extremely oversold you can see that the MACD has turned down yet again indicating that there is more downside to come. Perhaps more importantly you need to understand that the BDI is a measurement of the rates for chartering giant ships that carry iron ore, coal, grains, sugar, cotton and the like, and rates are dropping like a stone. This is puzzling behavior since most of the aforementioned commodities are close to or at record highs. Take a look at the chart of the CRB below for confirmation:
(Excerpt) Read more at marketoracle.co.uk ...
P!
My 8G cellphone just told me that QE6 is going to be announced tomorrow!
I've got a feeling it'll be the latter.
Deflation is the real concern, not inflation.
Credit contraction dwarfs printing and when fewer folks can get loans, cash becomes king as in the 1930’s.
Those with cash will be able to buy businesses, land, buildings, homes, etc for 50 cents or less on the dollar
Get ready
The morning after that speech there were a LOT of buttons being worn on the floors of the NYSE and the AMEX.......but instead of saying "WIN", they read "LOSE"
“Those with cash will be able to buy businesses, land, buildings, homes, etc for 50 cents or less on the dollar
Get ready...”
I was BORN ready. :)
I think that a big cause in the divergences of these indicators is just exactly where the printed dollars are going. As we have learned from the disclosures of the Federal Reserve as compelled by recent financial reform legislation, this money has been flowing to the banking system, where it is available for speculation, and not into the broad economy.
It is amusing, actually. Some years ago, the Russian government announced that it was increasing pay of government officials and welfare benefits by some large percentage, in the wake of a crunch caused by excess credit (i.e. attempting to monetize their debt). The economists pointed out, as if they had discovered something new that was not known by the Russians, that this move would be purely inflationary and would act fast to cause inflation. Of course, that was the point.
We can debate all we want, whether or not the best course for the US government is an inflationary blow-off or a deflationary crunch, but having chosen, it would appear, the former course, the execution is the most hamfisted possible. Instead of putting more money into the hands of those who owe the debts, to reduce the burden of debt on the economy as a whole, they have put more money into the generators of that debt, apparently attempting to expand the generation of debt still further.
Not if you figger that the rise in commodities has everything to do with investment and little to do with production. People need somewhere safe to dump their money. The commodity doesn't need to be shipped first.
If I'm barking up the wrong tree, someone please let me know :)
Not if you figger that the rise in commodities has everything to do with investment and little to do with production. People need somewhere safe to dump their money. The commodity doesn't need to be shipped first.
If I'm barking up the tree, someone please let me know :)
Not if you figger that the rise in commodities has everything to do with investment and little to do with production. People need somewhere safe to dump their money. The commodity doesn't need to be shipped first.
If I'm barking up the wrong tree, someone please let me know :)
you go girl...
You go girl...
That is correct. It’s going to banks, brokerages, financial institutions, and anyone else who need to shore up their balance sheets.
Banks are hoarding cash because of possible loan defaults to avoid insolvency. I can’t say how much they are putting in the commodity market, but if they have an investment arm an influx of Fed money as a reserve would probably mean money shifted to investment. I can’t verify that.
Brokerages and speculating, and I think there is a foreign contingent here too that is hedging against a falling dollar. It’s causing inflation, not due to demand, but due to dollar risk. We’re seeing the same thing as the ‘70s but from a reverse angle.
Worst part is of course we could be entering a vicious cycle of stagflation which will squeeze us between less purchasing power and a lack of capital for economic activity. The fallout won’t be pretty.
I recall one analyst a while back who commented, “The sum of underwater mortgages, non-performing consumer debt, strategic defaults, commercial RE, etc. the hole is in the tens of trillions. It will take a LOT of QE to fill that hole.”
IMHO, we may see a deflationary crash followed by high inflation when Helicopter Ben really panics.
Trouble is, they can have QE’s till they’re blue in the face, but how due they infuse that into the population?
The last attempt was, in a sense, the real estate bubble. That one popped.
Think about this.
Jobs
Housing
Food
We had a jobs bubble in the 90’s and early 2000’s.
We had a housing bubble that everyone knows about.
Is a food “bubble” next? I’m kinda thinking that’s where we’re headed...
They can’t infuse cash into the population because most are tapped out, or pretty much, credit-wise.
So they can make all the QE’s they want and it won’t make a snots worth of difference.
Without that money getting into circulation, creating consumer demand and jobs, we are toast.
There are no more bubbles.
:)
Well... the good news is... if you need to ship something, the rates are nice and low!
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