Monday, August 2, 2010

Phil Flynn: Re Inflation

More soft economic data and more talk of quantitative easing have commodity markets on fire. Forget about that supply and demand stuff as that is going to be secondary to the financial hedge play that is starting to unfold. Commodities are rising even after it was reported that manufacturing in China contracted for the first time in 16 months. The HSBC China Manufacturing PMI fell to 49.4 in July showing contraction falling from 50.4 in June.

Yet despite that weakness, the dollar takes a drubbing and despite the potential for weaker demand, commodities just continue to rise. Why might that be happening? Now some think that may be because the Chinese will back off further tightening measures or it may be because they think the Chinese will again put their foot on the economic accelerator. Yet the real reason is that the global economy is again slowing, increasing the odds of dollar devaluation. We are seeing commodities move.....Read the entire article.

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