Four Macro Market Signals

Gold went over $1000 and sustained a rally to $1020. A dip to test, and re-test $1000 is likely. This magical number will continue to be used as the line at which bulls and bears continue to thrash each other relentlessly like a tug-of-war match in an Ultimate Fighting chained rink.

I’m watching the 70.50 level like a hawk in Oil, as are several prominent hedgies I dialogue with on a daily basis. Right now, until Crude breaks above $71, I really like the spread of Short Crude vs. Long Natural Gas. I would lift the short side on a sustained break above $71 in Crude and get long and strong the entire energy complex, including equities.

The Dollar is beginning to weaken across all currencies rather than isolated instances, as was the case throughout the summer, when the Greenback showed strength against many majors. However, it now appears the floor for the US Dollar is being tested and probes are underway to see where the Federal Reserve will likely begin to increase its open market activities along with the US Treasury. It’s too early for a “strong” dollar in this economic bounce. Too many talking heads came out and said the worst is behind us. Which of course means that it’s not.

Keep an eye on Copper. China opened its mouth at the start of summer and swallowed this base metal like a wild boar, which threw off a lot of macro models because Copper is, of course, watched as a leading indicator of economic recovery. However, being that China was behaving like the gluttonous behemoth that it is, it could have just been a strategic build-up of reserves, or a hedge gone bad that needed to be covered. With China, we never know these days. Capitalism being so new to them, they’re like an over-grown kid on a high school football team that’s never played the sport but the coach puts him in there because he’s so big. Clumsy and stupid at times, ultimately very bad at playing their cards close to the chest and equally bad at not giving out the wrong signals and then chasing their own tail ex-poste.

Comments

[HardwoodFlo...:]

Nice intuitive commentary...

Sep 21 06:15 PM

[NUNAY the KING:]

I like it,

But I think China is much better at playing cards than you give them credit, considering their stack is two trillion and the US can't even ante.

Sep 21 11:56 PM

[Pauly B:]

The question I have is when will the FED recognize this inflationary commodity issue and do something about it so the consumer isn't destroyed?

I think we are seeing probes in inflation with golds current price.

The language going forward on Wednesday after the FOMC meeting is what I am watching for

Sep 22 09:16 AM

[Terragram:]

This administration, including the Fed, since they are no longer independent, do not want the free-market economy to recover. We need to wake up. Only when people are truly desperate will they accept the yoke of permanent indentured servitude to the federal government.

Sep 22 12:14 PM

[Lorenzo Cha...:]

I find China is more sophisticated in playing the games than people appreciate. It has its own problems for sure, but we tend to overlook its tremendous progress over the past twenty years. "clumsy", "stupid", "bad at playing cards close to chest" may not be the fitting descriptions for China. It has built up new and advanced infrastructures and industrial base that we can only envy. As far as working to divest its US holdings, it is more aggressive than the Japanese ever did. (Not being beholden to US military protection gives you quite a bit of freedom.) It has longer term view and strategy. In playing the game Go, the winner will place stones in an unnoticeable fashion until the trap is set. Don't underestimate our competitor's skill, or we will be in the trap.

Sep 22 01:43 PM

[Danny N:]

I think when comment on China, you need to be careful, as sometimes you really don't know what their strategy could be. They certainly are not stupid. Let's hope China continue to be nice and peaceful. Nobody want to offend China these days, seriously.

Sep 24 03:19 AM