Dollar rises as summer sell-off starts for stocks and commodities
Posted on 04 May 2011 with 2 comments from readers
The greenback was the only winner in a sea of red as global stocks and commodities adjusted to a rising interest rate environment and the absence of any news about a successor to the QE2 money printing program.
Gold and silver fell alongside industrial commodities, with silver diving to $41 after its recent assault on the $50 all-time high. That will have to wait until the autumn now. The great summer sell-off has started.
Black swans
Suddenly multiple reasons for lower markets that have been stacking up in the background for months are upon us. The flock of black swans has taken off.
China is continuing to tighten its money supply due to runaway food and fuel price inflation. India raised interest rates half a per cent yesterday for the same reason. Japan is in deep recession after its earthquake and associated nuclear disaster.
In the US the battle over the budget continues with Republicans increasingly vocal on spending cuts, while the political consensus to achieve QE3 does not exist. And without the continuous flow of liquidity from the Fed the financial markets have no legs.
Over in Europe a massive bailout deal for Portugal merely pushes the spotlight on to Spain and Italy’s debt mountains. Meanwhile, the fall-out from the original subprime crisis has landed banks on both sides of the Atlantic back in legal trouble again, a reminder that the true cost of this ongoing crisis has still to emerge.
Goldman Sachs call on the commodities complex last week increasingly looks a wise one. Commodities have been priced for an accelerating global recovery, and what we actually have ahead is a double-dip recession, although at the moment nobody will even put a percentage chance on that happening.
Dollar wins
The dollar is the usual winner in a market sell-off. For as stuff is sold you get dollars in return. The ArabianMoney newsletter this month looks in depth at prospects in the highly volatile silver market (click here).
It takes the view that a summer sell-off will eventually be the final cue to switch out of the US dollar, a currency that is in long-term terminal decline. However, investors chasened by a market crash will be unwilling to make this shift, thinking that the asset classes that have just fallen are more risky.
That is the real bear market trap this summer.
2 Comments posted by readers:
Chicago mercantile exchange raised margin equity requirements on options contracts- this also has had a big effect.
Very interesting and sobering commentary, Peter! I’ll add one caveat:
Goldman Sachs call on the commodities complex last week increasingly looks a wise one.
It’s rather easy for an organization to make a sound short term prediction (and to appear to be “wise”) when they are at the heart of the centrally orchestrated manipulation process that forces the tides of these commodities markets.
CME & The JPM Cartel Move the Markets:
The CME has raised the margins on silver by over 17%, and made FOUR margin hikes over the past two weeks. Wow! That action, coupled with the coordinated and centrally orchestrated actions to massively short silver have “turned the tide”. Short term result: silver down over 22%.
For the source regarding margin hikes, go here:
http://www.zerohedge.com/article/cme-hikes-silver-margins-17-4th-hike-8-trading-days
As Peter implied, the tide has indeed changed, and probably for the duration of the summer. But after silver re-builds a strong base, watch for it to top $50 in the fall.