Linda Raschke Blog

Time for a cyclical correction in these commodity prices.  It might come as a shock, but trees do no grow to the sky.  Sentiment readings on the dollar have been at historical negative levels.  This is OK when a market is in the middle of a strong momentum move.  However, the momentum has begun to flatten out, and the long overdue turn back up in the long end of the curve may be just enough of a kicker to trigger some buying in the dollar.   And this in turn can take the now extreme speculative excess out of some of these cash commodities.  Just as trees do not grow the the sky, prices are not going to fall straight back down, nor will they approach any of the price levels seen 3 years ago. 

 

Crude - classic  example.  One would think there was not one drop left in the ground of this stuf the way it has been trading.  Sure the world may run out of this stuff one day, probably after I am long dead, BUT, no doubt the market is a bit overweighted to one side at this point.

 

As always, how far rates start to back up can determine the extent of this selloff in commodities.  At some point, market participants will weigh the cost of carry in a market like gold when rates back up  high enough.  CPI only running at 4%??   I dont think so!  Of course, the cost of carry may be minimal compared to the potential for double digit inflation at some point down the road.  That may be way down the road though. For now, we like the dollar from long side, bonds from short side,  most cash commodities from short side.