Monday, June 9, 2008

The anti-dollar

On Friday I was about to comment that the market seems to have become inversely correlated to the price of oil, which does suggest to me the possibility that there is serious speculation going on in the commodities markets. This is still the general impression I have -- that people are scared of the US economy, scared of US inflation, scared that emerging markets might be overvalued and might be coupled to the US ... scared, in short, of just about everything, and looking for something to do with their money. As a result, they move it into the only thing that appears to be doing well, which is why we see these correlations. I stopped because I looked at some charts of oil, the dollar, and the S&P, and didn't see anything that bore out my idea, however, the sentiment is not mine alone, as this WSJ article about oil as an inflation hedge.

Update: The Saudis may have all kinds of reasons to jawbone the price of oil, but at that same time, they are the best positioned to know exactly what the fundamentals of supply and demand are, so we should probably take them seriously when they reiterate what we already suspect, namely, that oil has become a speculative financial commodity at this point.
"The increase in prices isn't justified in terms of market fundamentals,'' the Saudi government said today in a statement distributed by the Saudi Press Agency. Traders covered short positions, bets that prices will fall, because of the dollar's drop and threats of supply disruptions.

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