Wednesday March 8, 2006 - 11:21:04 GMT
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Black Swan Capital - www.blackswantrading.com
Sticking to the story...
â€śWe may prefer some competing theories to others on purely rational grounds. It is important that we are clear what the principles of preference or selection are. In the first place, they are governed by the idea of truth. We want, if at all possible, theories which are true, and for this reason we try to eliminate the false ones.â€ť
The spec run out of commodities that weâ€™ve talked about may be upon us. Gold bugs arenâ€™t happy the US dollar has rallied of lateâ€”thatâ€™s not supposed to be part of the story. The daily uptrend going back to early November â€™05 is being tested today in gold.
Copper has already broken its five month daily uptrendâ€¦
But from a longer-term perspective, the chart still resembles a rocket launch trajectory.
â€śThe Organization of Petroleum Exporting Countries signaled its intention to keep output unchanged, Nigeria predicted the return of most production lost recently, analysts forecast another build in inventories and, according to a diplomat, Iran agreed to a large-scale suspension of nuclear enrichment,â€ť reported the Journal this morning. Crude is hugging its near-term uptrend line. How much of the recent rally in crude represented geopolitics is the question?
And a look at commodities, fed funds futures (inverted), and the dollarâ€¦
We know itâ€™s a dangerous thing to look at a chart and guess what youâ€™d like to own. But assuming there is a relationship that says tightening liquidity may lead to lower demand from consumers. Itâ€™s likely not a stretch to say lower demand from consumers, letâ€™s say to build houses for example, may lead to falling demand for commodities. And assuming there is a positive lead-lag between the Fed Funds interest rate and the dollar; then from this chart alone, and those rather crude assumptions, over an intermediate- to long-term basis, the dollar looks a lot more attractive than the commodities index.
But, of course, thatâ€™s a set of facts and assumptions weâ€™ve chose to fit our story. It can all change very quickly. But for now, that is our story and weâ€™re sticking to itâ€”at least until we find a better one.
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