Dec 2, 2004

Right on Oil but...

Watching all commodity stocks enter a world of pain this AM. When the metal stocks went cliff jumping in January it was on selling out of Asia (supposedly margin calls). I think this oil news is having a similar effect as traders around the world really have no idea how much of China's commodity purchases represent consumption versus speculative accumulation. The data on China's economy is very suspect and so everyone tries to back out the real story based on commodity imports. This can create a circular effect where speculative buying creates the illusion of real growth and thus real commodity demand.

Taking stops in metal stocks today.

Notice that bonds continue weakening. U.S. equities are responding positively to the impact of lower oil but ignoring the drag of higher rates. Interest rates have been in a wide uptrend since April '03 and it will be interesting to see if the markets can tolerate rates making new highs.

The dollar is seeing its first real bounce in a while. I guess people are leaning towards a strong
unemployment report but that did not help the dollar last month.

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