Game On?: Commodities and Resource Equities Catch a Bid

The intense delevering by hedge funds took a massive toll on commodities and resource equities...if you were paying attention you saw the ball really get rolling to the downside mid-August, just about the time Ospraie's July swoon became public knowledge. Their 13% decline in the month rang a loud bell, and by the time the news hit they were probably down another 20% by mid-August, when they mercifully began to wind down their flagship fund.

There has been hell to pay since, but most of the delevering was finished by the time CNBC began incessantly chattering about copper last week.

But there was one ingredient missing, which was satisfied Tuesday afternoon in the currency markets. Is the dollar rally over?

October 28th
The prospect for the USD from this point forward is risky. Very risky. Every week that it strengthens, it undermines any fundamental reason to own it, as USD strength since July has seriously damaged US exports. Unlike the Yen, the USD does not have the multi-decade short position to support it. And then of course, there is the looming supply of US Treasuries set to trigger further over the next two years. gregor.us

Here we are thirty six hours later, and the world is waking up to the trade.....

Yesterday, crude oil jumped $4.77, or 7.6 percent, to settle at $67.50 a barrel. That was the biggest gain since Sept. 22, bringing the two-day increase to 11 percent.

Oil prices, which have tumbled 53 percent since reaching a record $147.27 on July 11, are down 23 percent from a year ago.

Crude prices also climbed as the dollar extended yesterday’s decline, falling to a one-week low against the euro. The dollar fell to $1.3183 per euro, the lowest since Oct. 21, and traded at $1.3170 as of 11:16 a.m. in Tokyo from $1.2963 late yesterday. The yen weakened to 98.40 per dollar from 97.39.

``With the U.S. dollar weakness, that provided the impetus for the rally’’ in oil, said Commodity Warrants’ Hassall. Bloomberg

We shall find out in a few hours if the trade has legs into the weekend; energy service stocks like Weatherford International (EFT-NYSE) were up well in excess of 10% Wednesday before the flaky end of day correction, but even Federal Reserve haters like Marc Faber are looking for a wicked rally that could take the S&P 500 up 250 points from here before the shit hits the fan again.

The stimulus package should continue to take shape and the Materials ETF (XLB-NYSE) continues to capture my gaze, although being a week early is no fun. Scaling into longs was rewarded yesterday in a mini-melt up, and perhaps these stocks will lead us higher again as we complete the other side of one giant whipsaw.

But with the hedge funds on the sidelines licking their wounds, new buyers will have to step up to drive the move. The fireworks show will not be as impressive as 2006 to spring 2008, but underweighting these stocks going forward could prove unwise.

Sure beat the hell out of tech and financials Wednesday, in any case.

Central bankers will reflate, or die trying.
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Can Dr. Copper get his shit together? Sideways here would be a win after the being written off the end of last week.
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Crude Oil Extends Gains as Rate Cuts May Stimulate Fuel Demand
Bloomberg

Yen Dead Star Theory
gregor.us
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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