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With
Europe in turmoil on the debt markets, and the Euro suffering, China, the Mid
East, Asia, Europe all are finding some haven in US markets. One thing that
is rather outlying is that commodities rallied along
with US stocks. Even though China is slowing and this information is being
censored some, basic commodities have suffered a great deal in the last year.
Tracking
currencies, the USD is the big winner and the Euro shows a lot of weakness.
That would not be a surprise give their sovereign debt situation which is
still unresolved and another fateful date is March 2012 when Greece has to
roll over another ton of paper debt.
April
25 we called the USD bottom and a rally and the silver bubble peak. Since
then, the USD has rallied consistently after hitting close to 71 on the USDX
and is flirting in the 80s now. Soon after the silver and gold bubble broke
and basic commodities like copper got hammered. That is also in line with the
peak of the Chinese real estate/construction bubble in Fall 2011, which is
being barely reported. That basic equation is not commodity friendly.
The
currencies responded accordingly during this phase, with the Yen rallying
(leverage unwinding of the carry trade) and the BOJ jumping in to stem its
rally at great cost. In a basic sense you can track currency moves on a large
scale based on the economic effect of major moves. The Yen rallied because
markets wanted to unwind, from an older economic paradigm, IE the
manufacturing economy becoming – well over leveraged.
Even
if commodities rally, the Euro will remain pressured unless Europe rebounds
and we feel the Euro is overvalued. It is struggling to hold 1.30 USD and in
fact we feel the Euro right now is really worth about 1.15 USD but is being
supported by the central banks. Well eventually that will come home to roost.
There
is more to say, and we at PrudentSquirrel track
gold, and currencies and commodities, and you can stop by and have a look at www.PrudentSquirrel.com
Disclaimer:
Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter and alerts, are general market
commentary only. They are not intended as specific advice. You should talk to
your own investment professionals for specific advice. Information here is
deemed reliable but should be verified by you if you think it’s important.Copyright 2012
Chris Laird
Prudent Squirrel
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