Daily Trading's  Instablog

Cotton, lumber, platinum, and copper are trading more or less at multi-week highs. We are not so specifically interested in trading cotton, lumber, platinum, and copper; rather we are more interested in the "subliminal" messages of multi-week highs in key industrial commodities. Like it or not we are unable to get away from these industrial commodities in our daily lives. The multi-week highs to us is more evidence of the developing bullish build up in commodities and inflationary pressures. How can one argue against economic growth and or inflation given the behavior of the charts below? If this behavior is not inflationary then we are missing something big time!

Of course the behavior of the four charts above are represented by the CRB Continuious Commodity Index (the old CRB Index which is an equally weighted index of 17 commodities). The CCI continues to etch higher quietly and in a seemingly controlled fashion. But wait there is more.........look at what the CCI is doing in AUDs! If this behavior is not a leading indicator of economic growth/inflation what is?

There is a new trend developing in world financial markets right now.....and that appears to be a breakdown in the faith of governments. The ultimate price of years of excess is about to be paid - inflation.

Disclosure: Long DBC SLV TBT

Equities, fixed income, currencies and commodities have remained relatively unchanged in a month now, with no new mutli-week highs or lows (The three biggest precious metals excepting).

Ho Hum. We are looking at this as a consolidation phase before the recent trends get underway again, perhaps over the coming weeks.

The bullish trend, high yield trade, up trend in risky assets........(call it what you will) prevails! Across equity, corporate bond, emerging market bond, and currency markets we see no evidence of a break of trend. Yes we do note some evidence of weakness but this has not been enough to draw into question the 12 month old bull trends. We have placed "support" lines on each of the four charts below to signify at what level we would draw into question our bullish "proposition".

 



What are the odds that the charts above will breakdown over the coming weeks? We don't know what the odds are but we do know that once a primary trend is in place it tends to last for extended periods of time. Right now, for whatever reason the trend is up and that is the way we are going to "play" things.

 Disclosure: Long PCY JNK DBV

US Treasuries are not behaving the way that they "normally" should.

We say this looking at strong equity, commodity, and precious metal prices. The price  of US Treasuries should be falling, or at best not rising. Rising gold, silver, platinum, copper, equites, et al, seemingly are good for US Treasury prices.

Rising prices of precious metals should be seen as inflationary; so how US Treasury prices rise?

Here is another thought; in six months from now, Gold could be trading at around $1300 and Silver at $25, if current trends continue. Where would US 10 & 30 year Treasuries be trading then?

Is the activity in the US Treasury market the real deal? Is it correctly anticipating a "deflationary" and/or low growth environment? Perhaps commodity prices are about to implode as last year. Or are precious metals and commodities suggesting something about US Treasury prices.

In this series we present a simplistic view of the internal process we go through to determine our market outlook. Each week we go through a discipline process of reviewing our outlook, reviewing & rebalancing our positions etc..

Regular readers will note that up and until last week our market outlook remained steadfastly unchanged. Last week we began to have some concern that significant levels of support may be tested. Although we are not claiming that momentum is 100% behind us, one has to make a call & at the moment our call remains like so:

Bullish:

Equity, Commodity and High yield Currency Markets seem reluctant to test recent support levels. They are still trading way above lows of the last few months.

It's a vastly different story for the USD Index and increasingly US Treasuries. As the USD steadily continues its trend of lower highs and lower lows, US Treasury markets seem to striking multi-day lows. Perhaps soon multi-week lows.

The below chart shows the explosion in the US Monetary Base. We think that this will eventually be reflected with a significant blow out in treasury yields and commodity prices. This is an image that dominates our outlook thinking at the moment.