Friday, January 30, 2015

Cam Hui with a great post on commodities

Humble Student of the Markets - on the commodity downturn. He addresses commodity definancialization, and Isabella Kaminska's argument that USD strength indicates withdrawal of US liquidity to the world which results in commodity collapse, I guess.

Supply and demand theory, when applied to currencies in this way, really makes me feel uneasy. Part of the reason is that US economic strength correlates positively with a strong US dollar, so sure US dollar strength means excess demand for USD but it doesn't mean the rest of the world is entering a depression.

Though yes, EMs correlate positively with commodities, so sure the EMs will be entering a secular bear market, partially because they make money exploiting commodity production and partially because they need cheap US capital to subsidize growth and (I keep harping on this) Jim Rogers came up with all that ten years ago so it's not exactly news.

And yeah, some other smart guy also just posted that he thinks all the negative EZ and Japan news is baked in, so we should expect upside surprises to global growth this year from the developed world, who after all are the biggest chunk of the world economy. And I'd add that China is not an emerging market anymore.

Still, this post is a great read and will hopefully foster a constructive frame of mind re commodities, so do please go read it.

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