i think gold is the most relevant to this discussion because the argument for gold is more purely the fiat-currencies-are-burning trade. the bullish argument for copper, oil, etc. has more to do with the Chindia demand story. so, if Chopper Ben turns out to be more serious about fighting inflation than the market and gold speculators anticipate, i think gold takes it on the chin. secondarily, one may argue that this tighter money will reduce demand for industrial commodities, and they will also be hit. that can be a valid argument (both from the fundamental supply/demand perspective and the speculator perspective) but i think the chain of causation is one degree removed from the case of USD interest rates vs. gold.
and let us not forget: unlike gold, oil is something the world actually needs in order to function. so, you have al Qaeda or whoever actually succeed in one of these terrorist attacks, and boom, you've got hundred-dollar crude, regardless of where the Fed is at.
also, as we have discussed before, it is not so much the absolute Fed rate which is in effect, as the market's perception of when the Fed is going to stop. already, it must be said, the Chopper has surprised the consensus with hawkish talk. when i say consensus, i don't necessarily mean J6P lumpen investoriat. i'm talking about the extremely common dollar-is-going-to-zero type of perspective you see out of all these hedge manglers. these people control a lot of leveraged money betting on this outcome. i consider Grant the poster boy for this perspective, partly because he is the most articulate, partly because he has been arguing for it (wrongly, i might add) for so many years. and then people like Fleck and Fry take his arguments and sprinkle it out to a wider audience. btw, to give you an idea how much street cred this perspective has, Paul Volcker is going to be a headline speaker at Grant's Spring Conference.
personally, i think the Chopper wants to kick some hedge mangler ass, which can easily be done by taking the discount rate up to, even, 5.5-5.75%. remember: regardless of what you have heard about him, he is smarter than 99% of the OPM yahoos out there. he knows Volcker is going to be speaking at the hedge fund hard-money lovers conference and denigrating the helicopter perspective. this is his great chance to knock them flat. i think he can buy some "street cred" relatively inexpensively over the next six months. that will also put a serious lid on the housing bubble and reduce a lot of inflationary pressure, at least perceptionwise, methinks. |
