The Great Commodity Unwind of 2008, which began in July, picked up steam this morning. Remember the trade: investors have not only been long commodities, they have been long the currency of major commodity producers like Australia, and short the dollar. That unwind is now accelerating, with positive implications for U.S. consumers and stocks.
Need To Know:
Where Oil Prices Head Next: Experts Weigh In
Lower commodities, particularly lower oil prices, gives households more purchasing power. What would benefit most from that effect? Autos, housing and retailers -- consumer discretionary stocks, and that is exactly what is rallying today.
Financials are also rallying, since more purchasing power from consumers means more loans, fewer defaults.
But bears are urging reality check on all the bullishness:
1) we have not heard the end of the negative story on financials. Forget the credit crunch; how's business in general?
Here's what Meredith Whitney at Oppenheimer said this morning:
"For example, last year during this time, almost $900 billion of mortgage backed paper was issued in the U.S. Year to date, the comparable number is $140 billion...While debt and equity underwriting volumes has grounded to all but a halt for several months now, trading volumes have now slowed materially. In August, trading volumes on each of the major exchanges were down double digits."
2) What about tech? As one trader noted, techs were preferred as an early "safe" play since most companies are not dependent upon debt and the credit markets for financing, and the sector has been a primary beneficiary of global growth. (See: "Ex-Bear: Time for Tech Stocks")
But Dell's downbeat commentary has thrown doubt on the extent of global growth techs will see.
3) Finally, for the true cynics, let it be noted that we crossed 1,300 on the S&P 500 once again this morning; the first time we crossed it was in the beginning of 1999, almost ten years ago!
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