The Dollar, the rally, commodities, and the Fed - What you don't know
The Fed did not just give loans to lenders and banks. Starting this week, it also gave loans to vanilla investment houses.
Those investors turned around and shoved it into the market. Classic pump and dump. That explains the volatility. Borrowing at 2.25% annual (about 0.2% monthly), that's free money.
They have 28 days, or roughly until mid-April. So I expect a lot of 1 day large swings as they seek to capitalize on the free money. We have to follow suit: one day buy-and-sell strategies.
Next, the dollar. The dollar stopped falling and even rose a bit. This runs counter to common sense - pumping more money into the system, dropping interest rates, and a slowing economy all serve to weaken the dollar. Answer: central banks worldwide are buying dollars to stave off the drop. Even tiny Israel bought a few billion. It isn't a sign of a successful Fed policy but a sign of coordinated fear amongst foereign central banks.
Commodities also fell. Partly from a slightly stronger dollar, partly because of the profit locking after a major run up. When looking at commodities, not all commodities are alike. Wheat is consumed. Gold, however, is stockpiled: only 20% is actually used. Oil rises and falls on dollar swings as well as some seasonality: as we move from Winter to Spring, consumption tends to dip a bit, only to spring back as folks get out and drive.
It is entirely possible that the Fed loans come with a price: public messages about inflation are followed by clear private directives to stop driving up commodity prices. "You want the money, we want lower prices."
I am going to do a special report on Cruise lines this weekend, followed by commodities
In the meantime, the Fed direct intervention in the stock market (giving loans to stock investoirs to buy stock) means that this rally has legs. I am sitting tight on my puts, but it does mean a lot of paper loss in the short term.
Oh, and
Those investors turned around and shoved it into the market. Classic pump and dump. That explains the volatility. Borrowing at 2.25% annual (about 0.2% monthly), that's free money.
They have 28 days, or roughly until mid-April. So I expect a lot of 1 day large swings as they seek to capitalize on the free money. We have to follow suit: one day buy-and-sell strategies.
Next, the dollar. The dollar stopped falling and even rose a bit. This runs counter to common sense - pumping more money into the system, dropping interest rates, and a slowing economy all serve to weaken the dollar. Answer: central banks worldwide are buying dollars to stave off the drop. Even tiny Israel bought a few billion. It isn't a sign of a successful Fed policy but a sign of coordinated fear amongst foereign central banks.
Commodities also fell. Partly from a slightly stronger dollar, partly because of the profit locking after a major run up. When looking at commodities, not all commodities are alike. Wheat is consumed. Gold, however, is stockpiled: only 20% is actually used. Oil rises and falls on dollar swings as well as some seasonality: as we move from Winter to Spring, consumption tends to dip a bit, only to spring back as folks get out and drive.
It is entirely possible that the Fed loans come with a price: public messages about inflation are followed by clear private directives to stop driving up commodity prices. "You want the money, we want lower prices."
I am going to do a special report on Cruise lines this weekend, followed by commodities
In the meantime, the Fed direct intervention in the stock market (giving loans to stock investoirs to buy stock) means that this rally has legs. I am sitting tight on my puts, but it does mean a lot of paper loss in the short term.
Oh, and
posted by Andrew at
7:56 AM
1 Comments:
OK..What if brokers lose that money that they borrowed from the Fed?
Mostly housing and Finance stocks rallied a lot last week.I agree with your point that this rally has legs because of free money but the economic calendar not looking great for the coming week.
I think commodity sell off was due to the option expiry last week and as a cover up for any margin calls…some buying opportunity here. Oil will rally again before the summer driving season.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home