Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Euro Rebound Oil Price Rebound

Commodities / Crude Oil Jul 19, 2010 - 12:26 PM GMT

By: Andrew_McKillop

Commodities

Best Financial Markets Analysis ArticleSince the start of July, the euro has stormed back to a backdrop of increasingly clear US-Europe economic fundamentals, that is weak US recovery and very weak recovery in Europe, with massive sovereign debt and government deficits in both regions. The currencies in play, the US dollar and Eurozone 16 Euro, are twin pillars of fiat money printing excesses, but at this moment, if the Euro is a Fiat currency, the US dollar looks more like a Trabant currency.


The USA's near-recession and fragile recovery is accompanied by extreme high State debt and budget deficits in the "USA-50", the 50 States of the USA, as well as Federal debt and deficit, generating a total for unpayable debt even larger than the already huge debts of the EU-27 states. In addition, the USA's trade deficit is truly structural and up to 4 or 5 times higher than the EU-27's "semi structural" trade deficit. Completing the FX trader kit for playing a quick Euro rebound, total stocks of fiduciary and other state-owned, state-accessible gold, in Europe, are considerably higher than gold stocks of the USA - powering the surprisingly strong, surprisingly fast euro rebound.

These economic fundamentals should not favour growth of the oil price over and above price growth due to US dollar depreciation and devaluation, but should uplift gold prices. However, this runs against the present and special context, where a discredited and fantasy-prone paper asset trading space has reached escape velocity. Rotating outside the real economy, its always shaky logic is more Black Swan prone then ever.

Euro rebound can and likely will drive a rebound of the oil price, in any currency or relative to "classic hedges" such as government bonds, gold and the gold price. Outside the USA and Europe, the real economy is moving forward on its steel wheels and airplane wings, meaning oil, coal, gas and uranium are running out of fashion a lot slower than fiat paper moneys. Oil traders, while staying very careful about when they think WTI futures can break the most-recent high, of USD 86 a barrel achieved in April, have moved back into net long positions. On the US Nymex market these rose about 65 percent in week ending July 16, the largest one-week rise since February 2007, according to the US CFTC commodity futures watchdog. Gold however lags back in this move to real resource hedging.

THE BLACK SWAN
Supposed fundamentals for both currency and oil traders, including outlooks for economic growth, car production, airline movements and airplane orders, as well as employment, debt and other indicators like inflation and interest rates are small beer in a maybe "secular movement" away from equity stocks and shares. The most basic "pure market" sentiment driver on all major stock exchanges and finance markets in OECD countries presently features reasonable and increasing doubt on the overall or general value of equity stocks and shares.

If equities start to lose investor confidence, and government bonds and other paper offers derisory low yields, this makes commodities, led by oil more interesting simply because they are a "default choice", due to the dearth of any other reliable assets to play with.

This outlook is reinforced by the carefully ignored, downplayed change of global finance markets since the 1980s and 1990s. Apart from globalizing, one other basic change, for oil, was the end of bilateral, physical-based oil supply contracting, offset and compensatory trading, and secondary trading, replaced by upstream "purely financial" futures based trading. Today, oil trading, and trading of all other commodities, exactly like trading of government bonds, currencies and corporate equities, are merely inter-related parts of a semi-uniform and global "common asset space". The proof of this comes almost every day when equities move higher on major markets like the Nikkei, NYSE, Dax or LSE - the same day, oil prices will also rise. Any day the US dollar tends to fall in world value, both oil and gold prices will tend to rise

This is unless the real economy data is very bad, in which case only gold will tend to rise, and unless the Euro-Dollar circus moves in unpredictable, unwanted directions, as at present.
 
Linkage and inter-dependence of tradable assets across global finance markets is stoically defended as a stabilizing and "visibility" raising influence, tending to prevent price break outs either way - high or low - until and unless special conditions and pressures are in play. These are classically defined as major geopolitical crises and change, such as US and NATO troops being pulled out of Afghanistan, when or if this happens, or major geopolitical crises in other world regions. Sudden and unexpected economic or financial crises are also allowed in, as special factors able to rapidly change relative asset values.

Liberal economic defenders of the global common asset space will sing in unison that it means stability and transparency - but its main defect is that it only reacts, and cannot anticipate. When changes happen they are usually violent and large, and are sometimes called "Black Swan" events after the excellent book written by Nassem Taleb. As Taleb underlines, the effect of large, complex, highly geared or debt-based, inter-related and inter-dependent asset spaces is simply to smother real economic fundamentals. This makes markets very fragile when changes occur - because the change can only be unexpected, large and rapid.

The 2008-2009 global financial crisis, and economic crisis in the OECD countries, occurred almost without warning, was violent, large and very fast. Market anticipation was at best confused. During the run-up to full blown crisis, in 2007-2008, oil prices increased to high levels and can easily do so again. As in that period, due to the global common asset space, the change will start slowly, then grow radically, with little advance warning.

By Andrew McKillop

gsoassociates.com

Project Director, GSO Consulting Associates

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

© 2010 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in