Wednesday, September 10, 2008

Lipstick on a pig or Commodity bust ?

The last several weeks of trading has seen the continued decline of the price of commodities and the decoupling of the relationship between the declines of oil prices leading too rallies in US equities. There are four main reasons for the price decline; 1) the dollar has begun to rally, as US interest rates stabilize and other global economies follow the US into a slow down. 2) Commodities are priced in dollars and a stronger dollar has brought down those prices by firming up the profits of the sellers of these commodities 3) the entire commodity market has had a significant deleveraging due to rule changes in margin requirements and 4) the US seems to be on point to make the first major change in energy policy since the 1970’s featuring a shift in focus from conservation to expansion of energy resources


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