Tuesday June 13, 2006 - 10:44:37 GMT
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Black Swan Capital - www.blackswantrading.com
It ain't over till it's over!
â€śPeople who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.â€ť
Our guess on the rationale behind the continued risk-reduction trade is this: It ainâ€™t over till itâ€™s overâ€¦
And until it is over, the dollar is likely to remain supported on safe haven flow.
The question is: Is the liquidity game over? Though the mantra is â€śinflationâ€ť, one could as easily call this a concerted central bank â€śasset bubbleâ€ť pricking instead. The Fed of course wouldnâ€™t admit such heresy, because they have already said they â€śdonâ€™t target asset prices.â€ť Yeah, okay!
What commodity traders are, we think, starting to come to grips with is the prospect that:
A) There is a deceleration in the US economy
B) The US economy is still the global driver
C) Global deceleration equals lower demand for commodities
D) Liquidity is declining as a function of
1) Concerted central bank tightening
2) Rising risk (volatility) concerns
We have always believed liquidity was a primary catalyst for the run in commodities i.e. a huge spec component beyond real demand. Both are now in jeopardy of being squeezed. And the landscape remaining after said squeezing will likely not be as fertile as before.
Thus, the â€ścorrectionâ€ť in commodities, really metals, is running deeper than initially expected.
A lot of people keep saying the fundamentals havenâ€™t changedâ€”gold should rally once this â€ścorrectionâ€ť is over. Two points on that:
1) The fact that people are saying that means not everyone has capitulated and there is likely more to go (flowing down a river of hope).
2) Falling liquidity and declining collateral values (of which the stock market is a primary repository) feedback directly and quickly into the fundamentals.
Jack Crooks, Black Swan Capital
Black Swan Subscription-based Service
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