Sunday, November 30, 2014

Commodities Falling

When you are the reserve currency falling commodities are bullish for the economy, for interest rates, and for stocks.  Worldwide demand is falling, the banks are exiting the commodity business, and leveraged longs who believe the inflation story are being margined out.  As the dollar gains steam, this trend will continue as money pours in, and those who borrowed in dollars must find them no matter the price.  The dollar is dead meme is over.

There is a great chart that explains what is happening.  Exeter's pyramid of liquidity predicted this. As the economic picture darkens,  Emerging markets, and commodities take a hit first, then U.S. real estate (that is where to watch next), then the U.S. stock market, Treasuries, the dollar, and finally last man standing, gold.

Because our 10 year yield is still too high vs the Euro and the Yen, we will continue to see the 10 year fall, and that will hold up real estate in 2015.  Refi in early next year as you will see sub 3.5% 30 year mortgages.  That drop in the 10 year will hold the stock market up as those yields are arbitraged.

Only when we see earnings falter will the market turn down in a meaningful way.  In the meantime enjoy the falling prices.  if you are interested in my daily buy and sell signals.

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