Tuesday, July 21, 2009

Commodities gain ground...

Greetings good citizen,

Those earnings reports must be really good as the markets enjoyed another ‘up’ day!

Naturally, if you came here looking for ‘good news’ you’re most definitely in the wrong place. I’m ‘hip-shooting’ here but as close as I can tell, today’s rally has been attributed to the eleventh hour ‘rescue’ of CIT.

On other fronts the news was less, er, dramatic. In fact tonight’s offering carries with it some very worrisome potential.

Commodities Gain Ground as Risk Appetite Grows

Published: July 20, 2009

Filed at 3:09 p.m. ET

NEW YORK (AP) -- Prices for gold and other metals are rising in the wake of more upbeat earnings and news of emergency financing for troubled lender CIT Group.

Investors' newfound optimism about the health of corporate America and the economy is driving them to put their money to work in riskier assets like stocks and commodities.

Buying was spurred by news that CIT Group reached a deal with its bondholders to help it avoid bankruptcy.

Meanwhile, a number of companies, including toy maker Hasbro, oilfield services company Halliburton and auto parts maker Johnson Controls all reported better-than-expected earnings. [Naturally, ‘better than expected’ might well have been abysmal under normal circumstances; in that respect, the ‘qualifier’ speaks for itself.]

Gold for August delivery is up $11.30 to settle at $948.80 an ounce on the New York Mercantile Exchange. September silver is up 1.7 percent.

Um, there is an ‘inverse relationship’ between the value of the dollar and the price of commodities so this particular tidbit should come as no great surprise.

More perplexing is how the government is reacting to our sinking fortunes…

Are our ‘creditors’ making good on their threats to ‘marginalize’ the dollar? While we have been assured by the ‘experts’ that it would not be in the best interests of holders of large sums of dollars to er, abandon their dollar holdings, we can only wonder what (as well as who) is driving up the price of gold?

Perhaps I should mention that ‘usually’ when commodity prices rise, equities fall. But that didn’t happen anywhere today.

This presents us with a conundrum good citizen; it is a bit mystifying to see the value of the dollar fall while equities rise. Rising commodities and a falling dollar are perfectly understandable. But rising commodities and rising equities don’t ‘compute’ when the dollar is falling…unless it is the dollar that is in trouble, which still doesn’t make sense because the ‘value’ of the dollar is tied to the value of the equity markets…

If equities are rising, the dollar ‘should be’ getting stronger…but it’s not. Does anyone else detect some ‘sand in the gears’ here?

That said, we could be witnessing some ‘lag’ between equity prices and the value of the dollar.

I guess what’s bothering most observers is how all of these corporations can be reporting profits when sales are down 9% year over year?

If these companies are really slashing their payrolls that aggressively (if the profits aren’t from sales then they are from cost savings…) er, we be in a heap of trouble.

I’m seriously teetering on the edge of the reservation again good citizen and I doubt you want to be subjected to another rant right now…so I’ll leave this here for you to make of it what you will.

Thanks for letting me inside your head,


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