DITTO

heck of a dividend………kind of like buying a junk bond……

Thanks Matthew for chart on FELP. I remember you mentioning it before with the attractive dividend. It does seem oversold and turning up on the sentiment and momentum indicators. Much appreciated.

That fits my philosophy Jay. And if I am correct the dollar will continue to fall then it means crude is a buy at these levels and the bear market in oil has almost ended.

It is very popular right now to go along with a few major market assumptions. The first is that oil must test much deeper lows based on chart support and the second is that we are in a global deflation in resource prices and thus the dollar must continue to strengthen (dollar up…commodities down).

Both ideas appear to make perfect sense on the face of it. And naturally enough few waste time trying to mix up what the prices of resources are doing compared to how other inflated asset classes will perform going forward without regard to the obvious….which is that some resources have already hit bottom while others are near to that moment.

What is not being fully accounted for however is that the commodity sector is nearing its long term bottom (basis the CRB chart which is what I am using). So while deflationary effects will continue going forward we will simultaneously begin to see resource prices begin to rise again (or at a minimum end their declines on a case by base basis).

Meanwhile I believe it is implicit that commodities end their general downtrend before the Fed can initiate any rate hikes and that this should occur even as it being becoming more widely understood that the dollar is indeed falling and its bull market at an end.

Rising commodity prices on a trend basis warns of coming price inflation. And in a most general sense, when commodities are going up then by default the dollar will be going down. Getting this wrong is going to be very costly for most people who have net on the wrong horse.

Even a casual glance at the CRB should tell most that a lasting bottom is now within sight. So the prospect of rising prices (in defiance of all the gloom about how demand no longer exists and the world will end because of China) is almost here again.

And do keep in mind that the dollar already went through what is CLEARLY a parabolic move to its peak. So it is improbable that it will resume an upward trend until it has first gone through a correction process of mean reversion.

That will take roughly as long to complete as it took for the dollar to spike up in the first place and thus I have been anticipating a sharp decline. That may have begun already with the past few days action since the PBOC implied an inflation bias to the Yuan and the dollar responded by falling sharply versus commodity currencies during the past few sessions.

In other words it means that crude and the better producers are a strong buy (in my opinion only of course) should this trend continue. It is also my view that the PBOC is working in conjunction with the Fed to weaken both the dollar and Yuan simultaneously and bring about an end to the commodity price rout.

The CRB Index should not be permitted to decline below its 2001 low or we really are in for a world of depressionary hurt. So with the worlds two strongest currencies now in decline together we are getting a buy signal on much of the commodity complex and that should (if the market is awake) send an inflationary impulse into sentiment expectations.

What this means to me is that during the coming few months crude and other resources will rally along with the Euro and the odds of an interest rate hike will improve substantially.

We must try to keep all these things in the back of our minds at the same time. If the CRB breaks down technically below its long term lows at 186 (?) we are just screwed royally every which way to Sunday.

That CANNOT happen or the idea of economic recovery is going to be a minor talking point for dreamers next year. If the market sees the major commodity index’s fall to ever deeper lows it will have a really devastating effect on their confidence and psychology.

Therefore, the bleeding will have to be stemmed and that means the euro will get bid, the dollar pressured down, crude oil start to rise off its current bottom and some key soft commodities rally. All of that is now happening.

So for me, this current Yuan devaluation is actually a good news story now that I have had time to digest some of the outcomes. And it just so happens to be gold-bullish at least for the near term so that’s a bonus.

The major CRB low was last seen in October 30, 2001 (15 years ago) and it bottomed at 185.66. Sorry that I was just going by memory in the post above and noted 186 with a question mark…..but I hate to have to stop to check and interrupt the flow of a post when the words are coming naturally!

What I was writing about in the post above btw was related to the impact of a falling Yuan on both the dollar and resources. This is being manifest in a rising Euro and is coming at a time when crude looks to be at an important bottom. Those who most closely follow the relationships between currencies, commodities, inflation and rates will know very well what I am talking about without further explanation. I would only encourage anyone who is curious yet unfamiliar with the ideas of correlations to look at the chart relationships to get a better understanding of why we are seeing the market behave as it is now doing.