Tuesday April 4, 2006 - 10:26:49 GMT
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Black Swan Capital - www.blackswantrading.com
â€śThe louder he talked of his honour, the faster we counted our spoons.â€ť
Ralph Waldo Emerson
We still canâ€™t help thinking there is more to this chart than meets the frontal lobe.
Gold, Copper, Fed Funds (inverted), NZ$, and Aussie Weekly:
A) A commodities overvaluation problem
B) A comdol undervaluation problem
C) A bit of both
D) None of the above
Donald Coxe, from BMO Financial Group, writes in his March Basic Points global summary [our emphasis]:
â€śGlobal liquidity, however one measures it, remains ample, despite worldwide rate risesâ€”with Japan about to be heard from.
â€śIndustrial commodities are calls on global growth.
â€śAt the margin, demand for industrial commodities is driven by China and India, and certainly not by the OECD economies. These emerging economies grow at 8% or more and their intensity of energy and base metals per unit of GDP growth is two or three times their headline GDP growth rate.
â€śTherefore, even assuming a marked US slowdown, driven by high short-term rates, high gasoline prices, falling house prices, and plunging consumer optimism, the global economy should keep growing, and industrial commodity demand should stay reasonably strong.â€ť
If Mr. Coxeâ€™s is correct, then we eliminate choice A) from above.
And if the demand for commodities continues unabated in Asia, as the US slows, while Japan hikes AND China throws at least a bone of yuan revaluation as it realizes some self-interest in a weakening dollar taking the edge off commodities prices (priced in dollars), we are left with the makings of a potential self-reinforcing trend out of dollars and into commodities and currencies benefiting directly from Asian and emerging market growth.
Does that mean we are left choice B), a comdol undervaluation problem? We tossed our coin is in the air, but itâ€™s doubtful it land any time soon. Stay tuned.
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