The current concerns with global inflations, including in China, Europe, US, the regulator bodies are tightening the money supplies. Both Europe and China have high interest rates. With US trying to recover from its housing crisis, the rate here remains low. Nevertheless with tighter money supply curing the inflation globally, no doubt there will continue to be slow growth. Slow growth means commodities such as metals will decrease in demand and hence in price. The notion of commodities will head lower is further supported by the tremendous run and speculative hypes in the past years. In deed we have seen the commodities coming off from its high couple month ago, but time frame is still short of average down trend, meaning there is more room for the commodities to continue to fall.
Some might argue that the general stock markets in US already came down from the peak of last October, we probably already hit the bottom and on the way to recover. Even some of the commodities-related companies are already priced low enough for value plays, to that extend I would agree. But slow growth meaning these commodities companies will not able to recover as fast as some other sectors, like Financials. With current interest rate at all time low and the special windows extending to some of the big financials, they are positioned to benefit the most from the yield spread. Already we see the financial sector rebound from their lows. I think this will likely to continue until FED ease off the rate.
I wished I’ve came to this generalization earlier, the signs were long before my eyes, the oil coming off its highs and Global inflation concerns. While I will continue to work on the timing in the future, I think we are currently at very early stage of this cycle, so we can still make the transition and benefit from this trend.
This is a general disccussion of the current trend, by no means, I am suggesting to dump the commodities stocks or buy the financial at the instant. Please be patient and let the market come to you for favorable conditions.