Crude Oil Is Over Priced At The Moment

Crude Oil is hovering around US$90/Barrel and is looking expensive at the moment. With almost every adverse news currently being discounted at this price level, new entrants and oppurtunistic specualtors are making a quick buck in this scarce commodity, driving it's price further up. However, with US president talking hawkish against Iranian president along with continued threat from terriorism and fast growing world GDP, and winters in the northern hemi-sphere, crude oil is expected to remain warm, not withstanding
short term corrections.

Crude Oil At US$85/Barrel

Crude Oil has created a new high for itself by crossing US$85/Barrel mark. With winters approaching fast in the northern hemi-sphere along with strong global economic growth coupled with ever increasing dependance on this scarce commodity, is fuelling it's demand, and hence steep prices for this commodity. Agri commodities also are ruling high due to adverse weather patterns in fertile geographic locations, causing severe demand-supply mismatch.
Future for all these commodities looks bright, but for consumers it's a nightmare!

Equities Took Rest While Commodities Shine

Last week saw emerging market Equities taking a breather after a steep rise from August month lows, while commodities like Gold and Crude Oil scaled new highs. It will be worthwhile that emerging market equities take some consolidation before they start upword march again, it seems stock markets want to see what the US federal reserve does on the interest rate front on October 30. This will be crucial factor in deciding ongoing sharp rally in emerging markets. Also with Japanese central bank deciding to hold rates at 0.5%, implying that deflation might re-surface in the absence of any solid economic growth on consistance basis, money from japanese investors will now look for growth which is happening outside their country, especially in India, China, Taiwan, HongKong, Russia. Having said that, emerging economies will be the key beneficiaries of this huge money flow.

Yen Is Weakning Against The US Dollar

Yen is trading at 117.20 against the US dollar after showing considerable strength in the month of August when subprime mortgage mess unfolded in the US and yen carry trade unwinding started. It seems at around 113 levels, lot of carry trade happened as japanese central bank doesn't increased it's benchmark interest rate and japanese as well as oversees investors/hedge funds/PE funds still wanting to have a pie of cheap funds available in yen currency, have them invested in riskier yet high yield assets of emerging economies lke India, China, HongKong, Taiwan, Russia. This is causing tremendous price rises in these assets and thus is a cause of concern in the short term.

Blow Out Phase In Emerging Equity Markets

Money flows from developed nations like US, UK, Europe is getting invested in fast growing economies like India, China, Taiwan, Singapore, HongKoong, Phillipines, Russia. This flow is very strong and there is almost herd mentality among them to enter these markets in a rush. This is causing extreme inflation in assets of these economies, notably in stocks. This money also is very reluctant to react to any adverse news and under such circumstances, making money at heightened valuations is an extremely challenging task for traders. Best to remain invested in excellent quality companies with excellent free cash flows and strongest of business fundamentals coupled with strong economic link.

Volatility In Emerging Markets

Last week emerging stock markets saw volatile trading sessions with stocks of Hong Kong, Taiwan, India moving violently amid alternate bouts of buying and selling clearly signalling nervousness among investor/trader class at hightened levels. Also aiding the volatility is the fact that markets still are confused about the extent to which US fed might cut the rates or will he refrain from any rate cut this time around, and markets have discounted 0.5% rate cut by fed already in much advance. Any rate cut dissapointment might cause temporary selling in emerging markets.

US Job Data

US job data released by labour department beat earlier forecast by experts of 60,000 jobs being added versus fresh data depicting that jobs that added infact are 90,000. This data can make US federal reserve pause in it's rate cut spree. It's very essential for US central banker to hold it's rates so that dollar can be hold steady against Euro, Yen, Canadian Dollar. If he cuts the rates then it might again unleash huge liquidity to riskier assets, which alredy are extreme inflated levels. Also central banks of US and European countries should slow down the level of printing their currency if they want to have financial markets in healthy shape and avoid bursting of equity and commodity bubble in an abrupt manner.

Dow Jones Erupts Again

Dow Jones staged a remarkable 200 point rally yesterday with a strong belief that US fed will again cut the interest rates by 50 basis points in October. Dollar also got support from stock rally. Crude oil also cools down a bit but still hovering around US$80/Barrel. US economy is still not out of deep problems and hence dollar investors are rushing to buy into riskier assets of emerging markets like India, Taiwan, Singapore, HongKong, driving valuations of assets(stocks) in these markets to absurd levels. Well so far so good, if US fed listens to market participants and don't follow economics rationale, then we may be heading for another rate cut and further inflated asset prices.

Will He Or Won't He

I believe this time US federal reserve will not cut interest rates as turmoil in financial markets from US subprime mess has been contained well and all the stock markets are either re-claiming their old heighs or making new heighs. If he does cut the rates then it will pump more dollars into the riskier assets like stocks and commodities, with more weakness in dollar. This will further create inflation among already hyper inflated riskier assets and make them more vulnerable to sudden shocks resulting in huge instability in the credit and financial markets. Thus for the sake of overall health of financial markets, US fed must not cut rates this time around, we already have enough of cheap money roaming around.

Inflated Equities

Falling dollar is inflating riskier assets like stocks and commodities. Emerging market stocks especially in china, India, Taiwan, Singapore are amid tremendous upward momentum due to huge flow of dollars from dollar investors and this has created extremely expensive equity valuations in some of these markets, especially in India and China. Crude oil too is continously trading above US$80/Barrel and stock markets are ignoring this important commodity price completely. History is evident that whenever crude oil has skaled a new peak, equity too has formed new high! As long as financial markets expect US federal reserve to cut interest rates, equity valuations will continue to be very expensive.

Crude Oil Is Below US$80/Barrel

Crude oil is trading below US$80/Barrel after oil producing countries raise the crude output by 5,00,000 Barrel/day along with reports of rise in oil and gas inventory in the US.
However with winter approaching in the northern hemi-sphere, demand for heating oil will keep price of this scarce commodity warm.

Will Fed Cut The Rates Again?

Financial markets seems to believe that US fed will again cut the interest rates in order to stop a housing slowdown led recession in that country. And hence dollar is seeing continous selling pressure against major currencies, and stocks along with commodities are seeing a major sharp upmove. But US fed might not go all out on rate cut spree as inflationary fears in US are still present. Therefore over exhuberance of stocks of emerging economies will have to be taken with caution, they say:- better late than never!

Gold And Crude Oil

After subprime mortgage mess happened in the US, gold is seing consistent buying and is ruling around all time highs of U.S.$736.
Crude oil is also creating new records with trading above U.S.$80 per barrel for the past few trading sessions. Both these commodities are expected to do well in the medium term as in case of gold, investors are seeing it as alternative investment avenue along with riskier stocks, and for crude oil, depleting oil stocks and continous demand from a growing world GDP and with winter approaching in the northern hemi-sphere crude oil will remain warm.

Falling Dollar Is Creating Asset Inflation

After US Fed had cut interest rates by 50 basis points, dollar has been falling steadly against major currencies. This will further lead to rise in other assets like commodities, stocks. Again for the past few trading sessions, gold, copper, zinc, lead, agri commodities and crude oil are rising and are at their all time highs. Stocks across the globe are rallying for the past few days. Dollar investors are pulling their money and pouring it into these assets. This is creating inflation in stocks, commodities and thus central bankers job is now much more difficult to manage inflation. This hightened levels of asset inflation does not agour well for growth and interest rates. Investors have a tough time managing their portfolio as volatility will rise along with hightened greed of market participants.

Markets Cheer Rate Cut!

Stock markets are cheering 0.5% rate cut by US federal reserve but i believe Fed must have punished defaulters of subprime mortgage borrowers and lending institutions by raising interest rates rather than cutting them. Instead Fed has revisiting same starting point which started this whole cheap credit phenomenon across all asset classes. By printing more and more dollars, Fed is again pumping more cheap money into the financial system and re-assuring the market participants that in any adverse event like default mess the fed will bail them out by printing more money, thus inviting more defaulters to do default at will and get away! That's the way systemic problems linger on and system makers continue to drag them for their pity interests like to help very large lending and investment banking institutions.

Fed Rate Cut Or Not?

Will the US federal reserve cut the interest rate in his september 18 meeting, if yes then by how much, is the puzzle that stock markets are grappling with. Any cut above 25 basis points will indicate deep scars left by subprime mortgage mess and subsequent dampening effects on the economy and job losses and thus concern for stocks in the US and on nations which are export dependent on US. Japan is already facing stronger yen problem because of yen carry trade unwinding and its effect on its exports. Asian stocks have shown good resilience and will continue to outperform the US and Europen stocks as money in these developed countries will flow to growing economies(asian) in order to beat low returns available in their home markets.