Sector,
If you are talking energy and GOLD, listen to what Tricha has to say....you may like to re-read this a few times.
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I imagine that President Bush is praying a lot these days. (or he should be). High oil for the US is unlikely to come down if the US dollar keeps falling. Meanwhile the US dollar is not likely to improve unless the US economy proves that it is not in recession. (or America wins lotto and manages to get its spiralling debt under control by paying some of it back).
Meanwhile for the average American homeowner, he/she is feeling poorer. Everything costs more; especially food and energy. Wages are no longer keeping up with inflation, and worse; house prices are falling at a dramatic pace. Foreclosures are common and as a result some company shares are collapsing in price. This all adds up to the average American putting off spending at the moment while he takes stock of the situation. (especially the pensioners earning interest in the bank) This lack of spending is a major problem and risk for the US economy. Unfortunately it is also bad for the world economy, especially Japan, China, India and Europe. (not to mention Australasia)
Unfortunately this is all adding up to a classic self reinforcing economic loop of falling demand due to high prices, oversupply and subsequent falling prices. As prices fall due to oversupply, production is cut back and workers laid off at short notice. An atmosphere of doom and gloom starts to pervade through the air, replacing previous sentiments of optimism and trust. How low will prices go and for how long will prices stay depressed? More importantly; how many more panic liquidations are looming?
This all depends on the level of fallout from previous credit excesses. It would appear that just because you provide easy credit so as to fulfil a larger number of homeowner dreams; this does not mean necessarily that all credit will be repaid in full by those less creditable, regardless of any sign of faith to the contrary.
This is a lesson that is proving costly to us all. The consequences of credit excesses are staring us in the face. Will it be hyper inflation due to a printing press mania or a prolonged depression? You know my prediction. I think that I will hedge my bets.
I am not bullish either on gold or oil. Investor sentiment on both is extremely high - close to a 100%. When that happens you know a peak is at hand - for who is there left to actually invest if most already have?
Gold in particular looks bearish to me - the classical view of oil is changing because of the supply- demand thing and history is now no guide with oil. I am surer of calling gold down than oil.
Would not surprise if the US $ found a bottom in the near future.
As it turns out; one day. A distinct pattern is appearing, The US FED announces a rescue package, the share markets stage remarkable multiyear one day recoveries and then the market falls again. This time the fall is around 300 points and it only took one day for the market to retreat.
The main culprit this time for the retreat is the dramatic fall in the price of gold.
http://www.forbes.com/feeds/ap/2008/...ap4795558.html
"Gold futures had their worst day in nearly two years Wednesday, beaten down after a smaller-than-expected interest rate cut bolstered the dollar and diminished the metal's appeal as a hedge against inflation. Other commodities also traded lower, with crude oil, silver, copper and agriculture futures all falling sharply as part of a broad commodities sell-off. Gold for April delivery plunged $59 to settle at $945.30 Wednesday on the New York Mercantile Exchange. The 5.9 percent decline was the largest one-day loss since June 2006. Gold soared to an all-time high of $1,033.90 Monday, following the Fed-approved bailout of Bear Stearns by JPMorgan Chase & Co."
Today could turn out to be a very costly day for some. A sudden spike downwards in commodity prices is going to bring with it a degree of panic for future traders who were long. The real test will occur at some time in the future when margin call time appears again with monotonous regularity. If prices recover then all will be well. If prices remain at these levels or lower; then panic will turn into fear. A hoard of cold hard speculator cash could disappear as a wave of panic selling begins in earnest.
"Gold prices slid in their biggest one-day drop in nearly two years and oil posted its worst slide in seven months, weighed down by persistent worries about the US economy's health."
link
;)