The Commodity Rally Will End Because The ISM Manufacturing Index Will Soon Plummet

The Business Insider ^ | 11-1-2010 | Vincent Fernando, CFA

[blam]

Societe Generale: The Commodity Rally Will End Because The ISM Manufacturing Index Will Soon Plummet

Vincent Fernando, CFA
Nov. 1, 2010, 9:21 AM

The U.S. ISM manufacturing index for October is set to be released at 10:00 AM this morning, and the market is expecting a reading of 54 according to Finviz, which indicates continued expansion. It's a good time however to remind ourselves that even if the ISM meets expectations today, there are those who expect a sharp drop in the index by year-end.

Take Societe Generale, for example, whose Alain Bokobza warns the ISM could hit 48 by year-end, which would indicate a contraction of manufacturing activity. This could end the rally for commodities-related plays, he believes:

SG's Alain Bokobza:

Commodity prices face opposite forces: backed by strengthening QE and its corollary, the USD fall on one side, but also facing a significant slowdown of the US economy by year-end. We’re currently neutral on the commodity asset class within our portfolio, waiting for a sell back to re-weight.

...

Don’t get overexcited by commodities with the ISM at 48 soon!

Commodities prices are cyclical and tend to increase in line with demand during economic expansion and tend to drop during economic contraction. Abnormal situations such as in 2008, when commodity prices skyrocked while the economy slowed, never last long. If the ISM drops below 50, do not expect a bull run in Commodities.

[snip]

[OldArmy52]

Investors and savers take it in the shorts, courtesy the Govt. Savers are zapped by zero interest savings and CD’s. Investors zapped by no clear direction — Govt doing Zimbabwee economies shrinks the dollar and so investors want to go commodities for protection vs. Govt. But Govt tax&tax&tax&tax policies hurting chances of economic recovery which drops commodities.

One Govt. Attacking the citizens from both flanks.

Vote more of this! Vote Dem!

[blam]

Investor Holding Of Cash Has Dropped To its Lowest Level Since April 2000

[Vigilanteman]

FWIW, I'm one of the guys who gets surveyed (on a rotating basis) for the ISM index. There is a lot of market uncertainty now and much tightness in the commodity markets, particularly for anything which is crude oil bases.

All of this uncertainty isn't going to magically disappear if Emperor ObaMao's privy council gets handed pink slips in sufficient numbers tomorrow, but it will be a major step in the right direction. Most of my suppliers feel the same way: a return to market rules introduces a degree of certainty into the markets which political and ideological objectives can not.

[grumpygresh]

Well, if silver follows part of its nature as an “industrial commodity”, if might pull back and afford a buying opportunity.

[blam]

The Calm Before The Storm: Are We Approaching A Turning Point For The U.S. Economy?

[PGR88]

Commodities may still rally. The action and new demand in commodities is in China and India now, and they are not coupled to the USA’s economy any longer.

[Zakeet]

The Commodity Rally Some Commodities Will End Because the ISM Manufacturing Index Will Soon Plummet, whereas the Rally for Other Commodities Will Soar Because the Dollar Will Soon Collapse

Note: greatly improved the accuracy of this article.

[NC28203]

From economy.com:

The Institute for Supply Management's manufacturing index rose from 54.4 to 56.9 for October. The increase more than offsets September's decline and puts the index at its highest since May. The details were solid; new orders increased by 7.8 points to 58.9 while inventories fell from 55.6 to 53.9.

The difference between new orders and inventories—a proxy for future production—rose from -4.5 to 5. The gap between new orders and inventories points toward additional gains in factory output and reduces the odds that the ISM index drifts below its neutral threshold of 50 this quarter.

[montag813]

I love all these stupid Business Insider articles. They give me confidence that my long stock positions will continue to prosper. (Remember who founded this absurd site: Henry Blodget)