Thursday Market: Commodities, Emerging Markets

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I’ve issued many warnings about a reversal day like this coming for the past two weeks. Yesterday hurt shorts badly but it hasn’t altered the bear market status of the overall market. And, we could have a few more days like this. The government most likely intervened in financial sectors today buying FRE and FNM as they indicated they would. So the Plunge Protection Team lives.

It shouldn’t surprise anyone that demand destruction in commodity sectors is a possibility given anemic economic conditions. OPEC officials yesterday stated demand for oil would decline this year due to poor economic conditions. If Iran wants higher oil prices, then they’ll launch a few more missiles or get their proxies in Nigeria to stir up more trouble.

However, the CPI, bogus number that it is, coupled with poor economic conditions should give everyone the willies. It means stagflation and that’s not good.

With the CPI now including “owner’s equivalent rent” as a major component, and that trend rising, perhaps the government will now want to revert to the previous model that included home prices now that they’re falling. Ok, let’s not give them any ideas.

Let me leave you with a simple question: “Do you think members of congress actually know why the Federal Reserve Board was created and what they actually do?”

Have a pleasant day.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in SPY, SDS, MZZ, IWM, TWM, QQQQ, QLD, XLI, SIJ, XLY, SCC, IYR, SRS, GLD, DBP, DBA, DAG, EFA, EFU, EEM, EEV, EWZ, RSX, FXI and FXP.

Comments

[Mark W.:]

David, Can you explain what you're looking at in drawing your support and resistance lines? They don't correlate to how I draw mine, based on previous swing highs and lows.

2008 Jul 17 05:44 AM

[Mark W.:]

David, I enjoy your column, but could you explain what you look at to draw your support and resistance lines? I draw mine using prior swing highs and lows. Yours seem to be based on other criteria. /Thanks

2008 Jul 17 05:46 AM

[zenalgorithm:]

The Fed is there to feed JP Morgan when JP gets asset hungry in bear markets.

2008 Jul 17 06:13 AM

[buyitcheap:]

Interesting that as demand destruction continuesthat might actually cool commodity inflation, and since inflation is generally a lagging indicator, this might actually portend LOWER interest rates. Would a raise by the Fed this fall be inappropriate? I'd been thinking that the raise would result in almost a shift UP in the interest rate curve across maturities, but now I'm not so sure, I'm wondering if it the long end will actually stay flat or decline if we do wind up with deflation instead of stagflation.

2008 Jul 17 07:46 AM

[fatcat:]

David,sometimes I don't get your lines either,but you do all my work for me,so no complaints.Good call on yesterdays action,you're the best..

2008 Jul 17 07:51 AM

[User 141585:]

www.themoneymasters.co...

"The success of the central banking scheme developed into a far-reaching plan described by President Clinton's mentor, Georgetown Professor Carroll Quigley, "to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank....sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the levels of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." "

2008 Jul 17 03:21 PM

[A.S.D.:]

Does anyone have any comments to share re Banro (BAA)?

2008 Jul 17 05:36 PM

[Ace Heartland:]

Perhaps he uses daily charts for support and resistance lines.

2008 Jul 17 07:36 PM