C.R.B. vs. B.D.I.

Below is a rather curious chart of the CRB Commodity Index vs the Baltic Dry Index.

It's interesting to note, that as commodity prices continued to trend upwards in recent weeks, the Baltic Dry Index has continued to drift downwards.

The ongoing activities of global Central bankers are once again boosting asset prices, including prices of USD denominated commodities. As speculators and hedge funds latch on to rising prices, it's quite possible that prices could rise still further.

Longer term however, this diversion in the CRB & the BDI will have to correct itself.

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Given that the rise in the CRB is not purely end user driven, CRB prices could see a sell off if the global economy faces a double dip.

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As Central Banks in Asia continue to raise interest rates to combat food & energy inflation, Asian economic growth could slowdown in the second half of 2011.

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Also, let's not forget the troubles with Club Med, unemployment issues in the developed world, the troubles with state/municipal finances in the USA and the Debt and Fiscal issues of the US government.

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If the world economy slows, the CRB Index is going to turn downwards.

Investors and speculators in the commodity markets must realise that at current prices, most commodities are trading in 'overbought' territory and leave the investor with little or no margin of safety at all

Caveat Emptor!

PRECIOUS METALS - CONSOLIDATION OR FURTHER CORRECTION ?

Over the past fortnight, the ongoing correction in the precious metals sector has caused quite a bit of heartburn for the 'goldbug' community.

While the recent troubles in Egypt have provided support to PM prices, the ongoing equity market correction could drag prices down further.

Take a look at Silver prices over the last month! That's quite a sell-off.

Mr Radomski of Sunshine Profits has an excellent chart on Gold.

I'm not buying anything yet, and will wait and watch to see how the markets open next week. Meanwhile, the USD & the Swiss Franc continued to benefit from increased market volatility.

INVESTING WITH THE HERD

I came across this article via David Rosenberg's article on the 24th of Jan 2011.
Here is the permalink to the NY Times article.
http://bucks.blogs.nytimes.com/2011/01/17/investing-with-the-herd/
It's an excellent article for investors to read right now, given the complacency that has crept into stock market valuations.

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog, and other drawings are available on his personal Web site, BehaviorGap.com.

Since March 2009, we’ve watched the market rebound by 80 percent. Whether you’ve sat it out on the sidelines or think you can predict what comes next, I recommend you take a step back and remember a few things.

You are not as smart as you think. Overconfidence is a huge behavior
problem for investors. Overconfidence is what happens precisely because we think we know a lot about the subject, but overconfidence can lead us to make mistakes that in hindsight will be glaringly obvious (but the tricky part is that we didn’t know it at the time).

Following the herd doesn’t make it safe. I know it’s exciting and fun to be an investor in Apple or Google right now. Then there’s the talk about getting access to the private initial public offering of Facebook through Goldman Sachs. Buying because everyone else is buying is not an investment strategy. These companies may be great investments, but not just because everyone else is buying their stock.

We’re social animals who feel safer in numbers, but so do sheep. We take comfort in doing what everyone else is doing, and in the back of our minds we know that even if we’re wrong, at least we’ll be wrong with a bunch of other people. But it was the same line of thinking that led us to do very stupid things in high school just because “everyone else was doing it.”

Investing is about behavior, not skill. Maybe you’ll accuse me of beating a dead horse, but successful investing is about how you behave. Buying high and selling low is dumb, but it’s worth repeating given what I’m seeing in the market today. It’s important to remember that you could own a “mediocre” mutual fund, and if you behave correctly you can outperform 99 percent of your neighbors. On the other hand, if you spend your whole life searching for the “best” investment, you’ll ruin your entire lifetime return in one single behavioral mistake.

I know that what I’ve outlined sounds obvious and easy to scoff at, but the fact that it’s obvious didn’t keep investors from loading up on tech stocks in the late 1990s, bonds in 2002, and real estate in 2006. As we enter 2011, and the excitement of our financial New Year’s resolution starts to wear off, please remember that it’s worth taking the time to stop and think before you invest.

DAVID ROSENBERG on US UNEMPLOYMENT

The graphs below come from 'Lunch with Dave' - January 7, 2011.

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SILVER - OFF TO THE RACES !

Silver has been a star performer over the last year.

While prices have corrected slightly from a level of just over $31/oz, the overbought condition in silver means that there could be further downside in the near term if lasts week's weakness in the commodity markets persists.

Below is a chart from some excellent analysis from Adam Hamilton of www.ZealLLC.com