Adam Katz

Whether Bailout Passes or Not, Implications for USD Are Bad

Montyman, here is the simple answer, although I don't know how useful it will be to you :) Everyone commenting here is correct.

Until the banks can get that credit out, we will have deflation as credit, in reality, is extremely tight. However, these banks are in the business of lending out that capital, so as soon as the major players get a whiff of improving credit conditions, they will race to find as much business as possible. When all the banks do this, credit will flood the system.

The Fed's plan is to drain the excess liquidity at that exact moment in time. I foresee that being unlikely as timing it is as difficult as timing the purchase of gold at the bottom. In addition, they will likely be unwilling, because inflation will be the only way to have a V-shaped recovery in equities, which is the benchmark by which most Americans judge the effectiveness of their leadership.

Whether Bailout Passes or Not, Implications for USD Are Bad

Good point Jason. I should have been more specific on what I mean by dips. I currently own puts on oil which should have been in my disclosure. My apologies. I would only look to buy in the 80's, maybe even the 70's depending on how the situation evolves. I much prefer natural gas however (UNG), which I own as well.

Also I should point out that the elasticity of oil does make it attractive in a risk neutral play, because the price will likely rise faster on increased risk appetite than it will fall on decreased risk appetite.

Commodities: The Next Bubble?

With most consumable commodities there is a general concern for a long term shortage. Other commodities aside however, gold in and of itself has a few characteristics which I believe will never allow it to trade at its 'full' potential. It will always "seem as though gold and silver should be higher". I hope to put an article together this week on that very topic so check back.

Another note on the inflation and currency risk, I think that too much emphasis is put on the nominal USD price of gold and only using U.S fundamentals when discussing gold price. Take a look at these charts I posted on my site a few weeks ago: www.plusev.ca/gold-usd.../

Gold has strengthened against every major currency over the past year, its move has gone far beyond that of USD weakness. In Canada our strong currency has actually led us to very low inflation numbers. Check out my other SA article on Canadian interest rates for a more in depth discussion. Globally, countries are taking note of inflation, raising rates in some economies. China and India, the two largest gold consumers are both raising rates which is gold negative, even Britain is refraining from rate cuts to combat inflation (and boy do they need them). The only country not showing restraint is the U.S, where the nominal price of commodities is their real price. However, even in their case, interest rate futures have been showing an easing of expectations, from a 50bps cut next month, now down to over a 15% probability that rates will be held constant.

Commodities: The Next Bubble?

Rhett, to clarify I sold my SLV when silver was at $20.50. SLV was at $198 and considering I got in at around $130 I was very happy with my return. I will still be looking to get back in for the long term, just short term I believe that the market got ahead of itself.

jimmy, no need to attack me. I am new to contributing articles and any constructive criticism will be well received. As per the title, the SA editors preferred it to my title which addressed the current over valuation in the commodity markets ("Commodities Bubble?"). As I said the long term fundamentals are undeniably good, and I will be looking to re-enter later this year depending on how the macro picture plays out and the effect it has on the broad commodities market.

Adam Katz