Wednesday August 16, 2006 - 10:20:51 GMT
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Black Swan Capital - www.blackswantrading.com
Slowdown and commodities don't mix...
â€˘ [UK] Unemployment has continued to rise, with the number of people out of work increasing by 92,000 to 1.68 million between April and June. (BBC)
â€˘ China permitted the biggest gain in the yuan since ending a peg to the dollar in July last year. (Bloomberg)
â€˘ Investment in China's real estate, factories and utilities rose at a slower pace in July. (Bloomberg)
â€˘ Japanese economic activity fell 0.6% in June from a month earlier because of a weaker performance in the services sector, the government said. (WSJ)
â€˘ Key Reports (WSJ):
8:30a.m. July Consumer Price Index. Consensus: +0.4%. Previous: +0.2%.
8:30a.m. July CPI, Ex-Food & Energy. Consensus: +0.3%. Previous: +0.3%.
8:30a.m. July Housing Starts. Consensus: -2.2%. Previous: -5.3%.
9:15a.m. July Industrial Production. Consensus: +0.6%. Previous: +0.8%.
9:15a.m. July Capacity Utilization. Previous: 82.4%.
â€śMoney, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.â€ť
A whiff of global slowdown fills the air.
First it was Chinaâ€™s little talked about lower than expected CPI. Then the UK put up an inflation number less than the collective punditry was betting on. And yesterday, US producer prices surprised on the downside.
Today we wake to a slowdown in the â€śgrowthâ€ť of investment in China and a higher than usual appreciation in the yuan and an increase in UK unemployment.
Slowing growth in a disinflationary environment could it be? Is that possible? Short answer: Yes!
And if so, itâ€™s not fertile ground for the continued demand or speculative fever from which commodities prices grow. And they have grown and grown thanks to a) Chinese insatiable demand, b) the Fed fighting the battle against â€śdeflationâ€ť by pushing Federal Funds to the emergency 1%-level in 2000, and c) the Bank of Japanâ€™s quantitative easing and zero interest rate policy.
Real demand and big time liquidity launched commodities into the ozone. Falling demand and tightening liquidity is the formula that might bring them back to earth.
There are some major stumbling blocks to making the decision to short the metals for all you and your house is worthâ€”the bodies of ex-traders who have bet against the US consumer and a slowdown in China.
Jack Crooks, Black Swan Capital Black Swan Subscription-based Service
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