Monday, May 24, 2010

Phil Flynn: The Death Of The Carry Trade

The” Carry Trade” just can’t carry the oil market away like it used to, especially with total petroleum inventories at a 20 year high for the month of May. So much for selling the dollar buying the Euro and every commodity you could get your hands on, the great carry trade unwind continues changing the way we may view all markets from this day forward.The global commodity markets are still trying to adjust to the economic problems in Europe and what may or may not happen in China in terms of economic policy. Not only will these issues adversely impact demand but also how the price of oil fits in terms as a hedge against global economic turmoil. As we have said many times before the increase in the price of oil and its fortunes has mainly been responding to the different phases of this global economic drama or as some have dubbed it “the Great Recession”.

With confidence in Europe being shaken and the dogma of ever increasing China demand is being questioned, the fragility of the oil price becomes so very apparent. The price of oil has got a lot of its bullishness not so much from oil demand but as a hedge against systemic risk. The euro has been the oil bull's best friend, not to mention the currency of “super models” but now it seems its fight for survival may have lost its appeal. The truth is that with the bailout of Greece and the purchases of debt by the ECB the Euro has changed forever anyway.Last week the markets went into crisis mode. The VIX volatility or fear index surged....Read the entire article.

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