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Markets in "risk off" mode this morning have oil -4.4% to $91.20, its lowest level since...

Markets in "risk off" mode this morning have oil -4.4% to $91.20, its lowest level since February. If the maxim "all gaps get filled" holds true, the next stop could be the mid-high $80s, which crude skipped over that month due to events in Libya. USO -3.3% premarket.
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Comments (12)
  • new slang
    , contributor
    Comments (171) | Send Message
     
    what's up with this risk on, risk off business....
    23 Jun 2011, 09:00 AM Reply Like
  • Windsun33
    , contributor
    Comments (4308) | Send Message
     
    It is the new buzz phrase for 2010 decade: www.forexblog.org/2010...
    23 Jun 2011, 09:11 AM Reply Like
  • Windsun33
    , contributor
    Comments (4308) | Send Message
     
    You would think in a rational world that when crude/energy costs go down, that the rest of the market would tend to go up, since it has lower costs. But lately it seems to be just the opposite. What we need is a new "Rationality Index" to tell us when things are more stupid and less stupid, I guess.
    23 Jun 2011, 09:13 AM Reply Like
  • Duude
    , contributor
    Comments (3398) | Send Message
     
    Crude goes down when world economic growth is thought to be lagging. How rational would it be for stocks to go up with the perception of world economic growth slowing?
    23 Jun 2011, 09:17 AM Reply Like
  • montanamark
    , contributor
    Comments (1446) | Send Message
     
    this is reaction to IEA panic and release of 60 mil barrels
    and spike in the buck

     

    remember just a few weeks ago they were talking demand, growth to justify 4.20/gal gas
    23 Jun 2011, 09:28 AM Reply Like
  • kmi
    , contributor
    Comments (4311) | Send Message
     
    Windsun, it used to indeed be that commodities were inverse to stocks and growth but now that commodities are speculative vehicles for banks and we have large ETFs permanently taking supply off the market by 'investing' in it, oil, and other commodities, now trade in tandem with stocks.

     

    We can thank deregulation of the commodities market in the late 90s for that.
    23 Jun 2011, 09:36 AM Reply Like
  • Windsun33
    , contributor
    Comments (4308) | Send Message
     
    But growth is NOT lagging - it is still growing, just at a much slower pace. Demand for oil/gas is higher now than it was when it was $115. Crude seems to be trading more on speculation than on real world supply/demand - but it has done that for decades.

     

    If gas prices drop to $3, that gives the average consumer about $60 a month more to spend on "stuff", supposdely increasing demand.

     

    I sense an entire disconnect here from reality, but I am not sure if it is me or "them". I am so confused ...
    23 Jun 2011, 10:15 AM Reply Like
  • Windsun33
    , contributor
    Comments (4308) | Send Message
     
    Maybe I am just not seeng things, but if the price of Aluminum goes down, then the price of Aluminum mining stocks should go down (all other factors unchanged), but stocks of Aluminum users - like Alcoa - should go up. At least in theory.

     

    Aluminum miners/mfg are very heavy energy users, so if the price of energy goes down, their costs should go down. So that should counteract to some extent the lower price of Aluminum.

     

    But none of that seems to be happening - it is like the entire market just moves in lockstep.

     

    So what am I missing here?
    23 Jun 2011, 10:24 AM Reply Like
  • kmi
    , contributor
    Comments (4311) | Send Message
     
    Now that banks hold and own commodities they can store large quantities of oil offshore in tanker vessels, aluminum in warehouses, silver, whatever. And they can play market forces to persuade the price to move in a direction they like. They are the arbiters of the exchanges, and the warehouses, and the markets. Its like going to an auction and bidding against the auctioneer.

     

    Additionally, with the rise of ETFs like USO, these ETFs permanently take the commodity off the market. An ETF doesn't 'consume' the commodity, it stores it in the expectation of the price rising, much like an investment. So what has happened is that as more money pours into say USO more oil is taken off the market.

     

    This has led to a long term rise in oil price not from demand by consumers but by demand from investors, on the one hand, and a virtually complete loss of 'price discovery'. There is no sanity in the oil market anymore, I can't hedge my costs at all, its really ridiculous.
    23 Jun 2011, 10:38 AM Reply Like
  • Windsun33
    , contributor
    Comments (4308) | Send Message
     
    That makes sense - well, why it is happening makes sense, the fact that it does happen does not.

     

    It looks to me like the average investor, and probably most institutional investors are SOL, and the best plan is to become a sheep and follow the market makers.
    23 Jun 2011, 10:50 AM Reply Like
  • Duude
    , contributor
    Comments (3398) | Send Message
     
    Its a phrase coined by a research team at HSBC. When risk appetite is high, credit markets, equities and high-yielding currencies tend to rally together. When risk appetite fades, those assets fall and government bonds and safe-haven currencies, including the U.S. dollar, the Swiss franc and, in particular, the Japanese yen rally.
    23 Jun 2011, 09:14 AM Reply Like
  • new slang
    , contributor
    Comments (171) | Send Message
     
    Yeah I got it, it just seems like an annoying buzz word used to try to sound smart or something... which sounds about right for the crowd. Appreciate the info though, damn you HSBC!
    23 Jun 2011, 12:50 PM Reply Like
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