Today the US dollar and Treasuries continue to sell off as if the Fed is going to announce some grand new ‘stimulus’ plan. In response commodities and the loonie have been attracting inflows once more. There are reasons to suspect however that this may be nothing more than a short-lived counter-trend rally. For one, the Fed has recently said they want to tighten soon, and flipping to some new theoretical loosening efforts, would scream panic just as central banks are trying to keep financial markets buying their narrative of monetary command and control.
Secondly, the world remains awash in oil and most other commodities and the many debt-strapped producers, are continuing to pump out product at any price just to grab cash flow and keep their story going long enough to float some more bonds…must keep the ‘ponzi’ dream alive for a while longer. With inventories at record highs, the more they pump the more they flood supply.
Before deciding prices will race back to $100, here are five charts worth keeping in mind. Here is a direct video link.
Thirdly, world growth and demand are continuing to weaken. This puts further pressure on foreign borrowers to pay back the 9 trillion in US denominated loans they have taken out over the past few years . They need to buy dollars to pay back those debts.
All these dynamics are critical to understanding and anticipating global capital flows today.
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