I am in the dollar! Get me out of here! Macro Economic misadventures, signs of recovery and the mother of all budget deficits created lust for commodities that made the month of May live up to its lusty reputation.
It was the lusty month of May as the lust for commodities grew at an incredible pace. Commodities went on a month longadventure that many have not seen in years. Commodities as a whole had their biggest monthly rise since 1974 as a confluence of factors, especially stronger demand hopes, against the backdrop of a deteriorating dollar. The yield curve between the 2 and 10 year notes which widened to the largest spread in history seen last month and seems to suggest that theeither the economy is going take off like a rocket or just a lack of confidence that the Obama Administration will ever be able to get the budget deficit under control. The buying of General Motors and another $30 Billion dollars to finance GM's bankruptcy is just the latest in nonstop spending that is shaking the confidence in the fate of the US credit rating. Thisincrease fear of hyper inflationis leading to historic moves in commodities. Oil for one had the biggest monthly rise in a decade and silver the biggest monthly run since 1987. And the dollar hit a five month low and had the biggest monthly drop against a basket of currencies since 1985.
This is leading to angst in China where they hold billions of dollars of our debt and tons of dollars and we are lookingto them to buy more. At the same time demand for commodities in China seems to continue to grow.The Chinese arebuying commodities because they are looking for an alternativeto the dollar and they are buying them because it appears that the massive government stimulus spending in China is starting to work. For the third month in a row the Chinese manufacturing sector improved and expanded hitting 53.1 in May following up on a strong April of 53.5 as measured by the official Chinese Purchasing Manager index.
Meanwhile as Bloomberg News and Reuters and Dow Jones reports the Fed is puzzled by what all of this means. The Fed is studying why the yield curve looks wider than the Snake River Canyon and what the implications are on for central banks strategy for quantitative easing. The Fed is wondering if the steepening yield curve means the economy is going to recover faster and therefore it's time to stop stimulating itor is it because the market thinks that the dollar is going to be worthless because it feels the amount of economic growth that the plan will generate will not justify the cost sending the dollar tanking. That would mean the Fed would need a lot more stimulus of some sortgoing forward. The Fed is stumped by the yield curve conundrum and if they guess wrong either way it could cause problems for the US and global economies for years. Or it may be that we may see a real decoupling of the global economies away from the US for a period unless we get our twin deficits under control.
In the meantime investment in traditional forms of energy is being discouraged by the Obama administration. The anti petroleum president will visit Saudi Arabia and bow not so much in a sign of respect but so the King can kiss the President's backside. On the one sideObama needs Saudi Arabia as a mediator if his Mid-East peace initiative is going to bear any fruit and on the other hand he has said, according to Reuters News, thatObama would discuss oil costs when he meets with Saudi Arabia's King Abdullah next week and plans to say that big price rises are not in Riyadh's interests.Where doesObama get off lecturing the King on rising energy costs when it could be argued that his energy policies may be the most expensive and bullish for energy prices in the history of this country. How can he ask for the Saudis to drill more when he desires to drill less. How can he say he is concerned about the impact of energy on the global economy when he supports an expensive cap and trade agenda? How can he tell the King to invest in oil and pump more when he says that he wants raise lease and royalty rates to discourage domestic production Saudi imports to the US fell to a 20 year low so I am sure the King is not all that concerned about losing this customer.
We're long July crudefrom apprx 5959 on the roll - raise stop to 6300!!!
We're long July heatingoil on rollfromapprx 15645 - raise stop to 16800!!!
Buy July RBOBat18200-stop 16900.
We're longJuly natural gas fromapprx 390 - raise stop to stop 340.
The Dan Flynn Corn & Ethanol Report
The July Corn had a strong night session that should carryover to Mondays Day session.
The July contract settled on the high at 441 3/4 the low was 434 1/4.
The U.S. Dollar is getting whacked in the overnight down 64 points as I write.
We should have mirrored trading activity with lower U.S. Dollar, Stocks and Enegies coming in higher this morning.
Is Stocks rally The Energy coplex should follow. Looks like were off to a rollong start in June !
Have a Great Trading Day!