John Williams Discusses The Reasons For The Upcoming Dollar Dump
And Whoosh
As we suggested earlier, there would be virtually no trading volume at all today, and any moves would be driven purely by the deltas. And following the close the fireworks would follows. Sure enough, here's the whoosh immediately following the start of the AH session.
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Guest Post: The Shape Of The World In 2020
Posted: Dec 17 2010 By: Dan Norcini Post Edited: December 17, 2010 at 6:11 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Click chart to enlarge today’s Treasury Bond chart in PDF format with commentary from Trader Dan Norcini
Posted: Dec 17 2010 By: Dan Norcini Post Edited: December 17, 2010 at 5:29 pm
Filed under: Trader Dan Norcini
Click chart to enlarge today’s Treasury Bond chart in PDF format with commentary from Trader Dan Norcini
Posted: Dec 17 2010 By: Dan Norcini Post Edited: December 17, 2010 at 5:29 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Based on a few emails that I am receiving that are related to my comments on the CCI chart, I thought it best to respond here so as not to have to field so many individual answers as my time is limited.
Some are misinterpreting my comments about the commodity sector being in a bubble as if I am saying gold is in a bubble. It is not. What I am saying is that I believe, based on what I can see of the normal fundamental supply/demand situation, that hedge fund buying in the commodity sector has pushed several of these individual commodity markets into bubbles.
Let’s start with what my view of a bubble is. It is an event created by an infusion of SPECULATIVE money that is not tied directly to actual changes in the real physical supply/demand equation of a commodity or asset. Bubbles are very difficult to recognize for just about all of us until after the fact but one thing is common to them all – they are all the result of a huge inflow of hot money chasing the “investment du jour”; one that has been hyped as a “no lose investment”.
The result is that buyers pay ever higher and higher prices for a product or asset with little if no concern what its fair value might actually be. In the process a sort of mania develops in which there is no fear of prices ever moving lower. The only direction that the bulk of people think the market is going to move is higher. Caution is lost in such a situation with greed taking over as those on the long side of the market become extremely confident that prices will work in only one direction – higher.
Without citing any of the commodity markets specifically because I do not want to have some blindly selling, let me just say that when commodity type funds or hedge funds buy commodities as an investment, they generally do not pick and choose markets. They buy an ENTIRE BASKET OF COMMODITIES based on the composition of the particular commodity index that they are tracking. What this translates to in an example might be a firm looking to invest $50 million of client money, will spread that $50 million across every commodity futures market that comprise the index they are using as a benchmark. SOME of these commodity markets will indeed justify the buys; others, whose fundamentals are not overly bullish, will nonetheless also move higher as this speculative investment flows into them as well.
Granted, investment demand is part of the supply/demand equation in any commodity and must be factored in when price discovery is occurring, but the nature of these flows is that they are extremely fickle, and can evaporate almost instantaneously should any sort of external development occur which might be viewed as hostile to the environment which is leading to the surge in demand from this particular corner.
Do you recall how sharply many of the commodity markets dropped when news came out that China was hiking interest rates a piddly ¼% in an attempt to get inflation under control? One would have thought that Armageddon had been unleashed on the commodity sector judging from the speed at which money flew out of the complex. Of course, those slides in price have been erased but the fact is these flows are very, very transient at times. In those markets in which demand for the underlying commodity is based mainly on these investment flows, price can collapse in a hurry once the support coming from such flows is gone or evaporates.
This brings us back to what Jim has been warning about for some time now, as has Monty and myself – namely – currency induced cost push inflation is going to occur. The Fact that the CCI is soaring and is within a whisker of taking out its all time high made back in the summer of 2008 when the sector was in a bubble just prior to the unfolding of the credit crisis, is evidence that this currency related event is indeed occurring precisely as Jim said it would. Hedge funds are buying hard assets as protection against a general global trend of currency devaluation. Regardless of whether or not the fundamentals justify these high prices for some commodities, they are all generally rising as these hot money flows rush into the sector.
It is my contention that SOME OF THESE commodities are now in bubble territory as a result.
Does that imply that prices are now going to collapse? Hardly! No one can predict with any degree of certainty WHEN a bubble might pop and prices drop. The market will follow the path of least resistance, which is higher, until some external event triggers a sell off that then feeds on itself as the hot money flees the investment altogether. That can take price to levels unheard of and certainly not supported by any real world supply/demand equation.
All I am saying with today’s comments on the CCI chart is that I would prefer to see the bubble pop and prices drop rather than have to live through an event which some seem to be hastening, if only to see the price of their gold and silver move higher, namely hyperinflation. I am on then record here as saying I do not want to have to live through such a thing. It is more horrific than many can imagine and if given the choice would prefer to see a sound currency, a sound economy and a sound fiscal structure for our nation’s government. Given the fact that there seems to be little chance for two of these and maybe, truth be told, all three, prudence dictates that we prepare for the worst and hope for the best.
While some commodities are in a bubble, gold is not. It is a currency.
Behind the price of the soaring commodity complex is the story of the debauchment of fiat currencies. That is why gold is shining and will continue to shine. The Fed wanted to create inflation – they have gotten their wish.
Hopefully, this clarifies things a bit.
Click chart to enlarge today’s Monthly CCI chart in PDF format with commentary from Trader Dan Norcini
Posted: Dec 17 2010 By: Dan Norcini Post Edited: December 17, 2010 at 4:47 pm
Filed under: Trader Dan Norcini
Based on a few emails that I am receiving that are related to my comments on the CCI chart, I thought it best to respond here so as not to have to field so many individual answers as my time is limited.
Some are misinterpreting my comments about the commodity sector being in a bubble as if I am saying gold is in a bubble. It is not. What I am saying is that I believe, based on what I can see of the normal fundamental supply/demand situation, that hedge fund buying in the commodity sector has pushed several of these individual commodity markets into bubbles.
Let’s start with what my view of a bubble is. It is an event created by an infusion of SPECULATIVE money that is not tied directly to actual changes in the real physical supply/demand equation of a commodity or asset. Bubbles are very difficult to recognize for just about all of us until after the fact but one thing is common to them all – they are all the result of a huge inflow of hot money chasing the “investment du jour”; one that has been hyped as a “no lose investment”.
The result is that buyers pay ever higher and higher prices for a product or asset with little if no concern what its fair value might actually be. In the process a sort of mania develops in which there is no fear of prices ever moving lower. The only direction that the bulk of people think the market is going to move is higher. Caution is lost in such a situation with greed taking over as those on the long side of the market become extremely confident that prices will work in only one direction – higher.
Without citing any of the commodity markets specifically because I do not want to have some blindly selling, let me just say that when commodity type funds or hedge funds buy commodities as an investment, they generally do not pick and choose markets. They buy an ENTIRE BASKET OF COMMODITIES based on the composition of the particular commodity index that they are tracking. What this translates to in an example might be a firm looking to invest $50 million of client money, will spread that $50 million across every commodity futures market that comprise the index they are using as a benchmark. SOME of these commodity markets will indeed justify the buys; others, whose fundamentals are not overly bullish, will nonetheless also move higher as this speculative investment flows into them as well.
Granted, investment demand is part of the supply/demand equation in any commodity and must be factored in when price discovery is occurring, but the nature of these flows is that they are extremely fickle, and can evaporate almost instantaneously should any sort of external development occur which might be viewed as hostile to the environment which is leading to the surge in demand from this particular corner.
Do you recall how sharply many of the commodity markets dropped when news came out that China was hiking interest rates a piddly ¼% in an attempt to get inflation under control? One would have thought that Armageddon had been unleashed on the commodity sector judging from the speed at which money flew out of the complex. Of course, those slides in price have been erased but the fact is these flows are very, very transient at times. In those markets in which demand for the underlying commodity is based mainly on these investment flows, price can collapse in a hurry once the support coming from such flows is gone or evaporates.
This brings us back to what Jim has been warning about for some time now, as has Monty and myself – namely – currency induced cost push inflation is going to occur. The Fact that the CCI is soaring and is within a whisker of taking out its all time high made back in the summer of 2008 when the sector was in a bubble just prior to the unfolding of the credit crisis, is evidence that this currency related event is indeed occurring precisely as Jim said it would. Hedge funds are buying hard assets as protection against a general global trend of currency devaluation. Regardless of whether or not the fundamentals justify these high prices for some commodities, they are all generally rising as these hot money flows rush into the sector.
It is my contention that SOME OF THESE commodities are now in bubble territory as a result.
Does that imply that prices are now going to collapse? Hardly! No one can predict with any degree of certainty WHEN a bubble might pop and prices drop. The market will follow the path of least resistance, which is higher, until some external event triggers a sell off that then feeds on itself as the hot money flees the investment altogether. That can take price to levels unheard of and certainly not supported by any real world supply/demand equation.
All I am saying with today’s comments on the CCI chart is that I would prefer to see the bubble pop and prices drop rather than have to live through an event which some seem to be hastening, if only to see the price of their gold and silver move higher, namely hyperinflation. I am on then record here as saying I do not want to have to live through such a thing. It is more horrific than many can imagine and if given the choice would prefer to see a sound currency, a sound economy and a sound fiscal structure for our nation’s government. Given the fact that there seems to be little chance for two of these and maybe, truth be told, all three, prudence dictates that we prepare for the worst and hope for the best.
While some commodities are in a bubble, gold is not. It is a currency.
Behind the price of the soaring commodity complex is the story of the debauchment of fiat currencies. That is why gold is shining and will continue to shine. The Fed wanted to create inflation – they have gotten their wish.
Hopefully, this clarifies things a bit.
Click chart to enlarge today’s Monthly CCI chart in PDF format with commentary from Trader Dan Norcini
Posted: Dec 17 2010 By: Dan Norcini Post Edited: December 17, 2010 at 4:47 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
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