"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, May 3, 2011

Money Flows absent in the Commodity Complex

It appears that there has been a shift in hedge fund strategy in regards to risk trades since the beginning of this week.

I have been watching the CCI and it is moving down rather sharply and is  now threatening to take out a chart support level should it continue to move lower tomorrow.

I cannot as of yet ascertain what the thinking is behind the abandonment of some of these risk trades but whatever the reason, it has resulted in a loss of money flows into the broad commodity markets for the time being.

There has been some chatter over nervousness concerning possible reprisals by terrorist groups as a result of the death of OBL. Crude oil in particular has been roiled by this since Sunday evening with crude traders unsure what to do next. That has led to wild swings in price in that market but I have noticed broad based selling across several of the commodity markets irrespective of fundamentals. The selling is of a nature which tells me that it is algorithm related because it is mindless and indiscriminate.

Bonds continue going straight up which is evidence that they are getting some sort of safe haven bid as well which helps confirm in my mind that this is related to risk aversion.

I am not sure when the money flows will reverse but when they do, the commodities will begin moving higher based off the weakness in the US Dollar, which is hovering above chart support and attempting to stop from dropping like a rock.


  1. Could it also be due to general risk aversion (not just commodities)? I'm not sure the money will be coming back in until we see some better general market confidence--the equities and commodities are so positively correlated these days. I feel the metals may reach a solid buying level, but be unable to move off of it, if the general risk conditions remain tentative, and thus be a potential value trap. Does this make any sense?

  2. The view taken by many at ZeroHedge and Turd Ferguson's blog is that the reclassification of a lot of their silver by many bullion banks, apparently Scotia Moccatta especially, from registered to eligible has spurred the Comex to raise margins as wildly as it has in order to buffalo as many speculative longs as possible out of the market. The amount of silver available for delivery is now apparently only enough for fewer than 7000 contracts. I'm way too inexperienced to have a view of my own so I'd like to learn by asking professionals. What's your take on this? Could this possibly be the driving factor in the funds' change of strategy? What are the implications in the short and medium term? Thanks so much for your thoughts. I really appreciate this blog.

  3. My guess is that a big fund is in trouble. Lots of stocks are gyrating wildly, like Herbalife gapping up and Las Vegas Sands getting killed. Probably related to all the metals turmoil, some big fund is probably liquidating everything in sight, both shorts and longs. As soon as this unwind is over we'll probably see a violent rebound. Lots of guys are smelling blood right now and they are pressing their bets to wipe out their competitors.


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