Heinz on the Market, Oil, and Gold
Date: Mon Mar 15 2004 16:33
trotsky (correlation trouble, pt.3) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
there is one possibility, admittedly not weighing very heavily on the probability scale, that might explain why the various market sectors are now declining in unison, regardless of price movements in e.g. underlying commodities ( like in gold and oil stocks today ) .
i almost dare not say it, because it sounds so nutty. the dreaded word is crash...or to not put it in such an extreme manner, mini-crash.
it grabbed me when a CNBS reporter asked a 'market strategist' incredulously: 'what's wrong with this market?', and then was fobbed off with the usual pablum. admittedly that's not lot of evidence to base this on, but an incredulous sounding CNBS reporter asking 'what's wrong?' is a regular feature of the days preceding an outright debacle of this sort. note that a recent survey found that the percentage of market participants believing a crash to be 'possible' at all has declined to a new all time low. this of course makes it more, not less, probable. the possibility is certainly the LAST thing on anyone's mind right now, which makes it intriguing to speculate about it. note in this context that leveraged bets in the system, on everything from stocks to junk bonds are at an all time high. a concerted run for the exits is imo NOT out of the question. in that case, only govt. bonds and physical gold should provide hiding places. pm stocks would probably decline more than the rest of the stock market, on account of their illiquidity.
certainly don't want to unnecessarily scare anyone, like i said at the outset, the probability of such an event is per definition very low.
Date: Mon Mar 15 2004 15:54
trotsky (correlation trouble, pt.2) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
not only are the pm stocks correlating more with the stock market than with the metals now, they actually tend to outperform the stock market to the downside, i.e. they move with a higher beta. this should of course also hold true on the upside eventually, but today's action is quite alarming imo.
Date: Mon Mar 15 2004 15:42
trotsky (Carmack@crude oil and deflation) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
let's say a worst case scenario develops in oil - just as an example, a few well-placed RPGs hit the Ras Tanura terminal and oil shipments are severely curtailed for a few months, with prices surging to some wild target, like e.g. $80/bbl.
this would no doubt kill demand for end products all over the world...a much larger slice of corporate and household budgets would be devoted to paying for energy, while a plethora of goods already in oversupply would fail to find buyers. thus, aggregate price levels would probably fall rather than rise, i.e. a big surge in oil prices would likely hasten the arrival of outright price deflation.
note that financial assets like e.g. stocks would without a doubt fall sharply as well, cutting into the 'wealth effect' and worsening already stretched household balance sheets. this in turn would lend new urgency to the need to curtail borrowing and rebuild savings - inherently deflationary events.
nevertheless, price inflation in commodities may well continue in such a scenario for a while, but presumably not forever. at some point the fall-off in demand would intersect with the currently still problematic supply of commodities.
the important point re. aggregate inflation is that a ) commodity inputs are still only a small slice of total input costs, and b ) the input price increases can't be passed on in the face of global industrial overcapacities. |
