Geo Politics Takes Center Stage
by Rob Kirby, Kirby Analytics. July 17, 2006
This past week has seen a convergence of events like no other in recent memory. As if the merciless malaise in Iraq was not enough, armed conflict has now expanded its bloody bounds once again in the Middle East with new actions being undertaken against Israel as well as resulting reprisals against Lebanon. Additionally, a defiant North Korea is now subject to a new round of U.N. Security Council Resolutions.
Against this backdrop, we awakened Monday morning to see two of the most strategic of all commodities – crude oil and gold – along with the U.S. Dollar, displayed "stunning" price reversals and pick up incredulous momentum to the down side.
As this dyslexic Reuters account tried [and failed miserably] to sum things up today,
TORONTO, July 17 (Reuters) - The Canadian dollar fell against the U.S. currency on Monday as the greenback benefited from a move to safe havens as the tensions in the Middle East escalated.
Domestic bonds prices were flat to lower as attention fixed on key Canadian and U.S. inflation data later this week.
At 8:45 a.m. (1245 GMT), the Canadian dollar was at C$1.1314 to the U.S. dollar, or 88.38 U.S. cents, down from C$1.1286, or 88.61 U.S. cents, at Friday's close.
With the growing conflict between Israel and Lebanon now into its sixth day, investors responded to the uncertainty by buying gold, oil and U.S. Treasuries, which are all priced in U.S. dollars...
False Flags and the Tooth Fairy?
To the above Reuters assessment [at 10:30 a.m. - the time of writing], I will offer these observations:
- The U.S. Dollar [as measured by the USDX] is indeed up .75 to 86.53
- Bonds have "sold off" 2 – 3 basis points across the curve from Friday's closing levels – FUNDAMENTALLY REFUTING THE U.S. DOLLAR AS A SAFE HAVEN HYPOTHESIS
- The price of gold has been pummeled to the tune of 22 bucks
- The price of crude oil is off some .88 per barrel
- The resource laden Toronto Stock Exchange [TSX] is off more than 70 points while the DOW is hovering near the unchanged level
Who would have ever thought Reuters could produce such compelling fiction?
Unbelievably, the talking heads on mainstream financial television have been widely reporting this morning that commodities prices [gold and crude oil] have fallen on reports [unsubstantiated] that Israel will "soon" cease military operations in/against Lebanon.
While I do not take lightly to delving into political debate in this space – I would like to point out [just as Jim Puplava has so many times in his radio broadcasts] that geo political considerations are increasingly dictating market movements on both macro and micro levels.
Explanations being offered for a great many of the economic happenings we are currently witnessing, fundamentally do not make sense.
Some clear thought and a dose of reality would perhaps lead one to take stock of Paul Craig Roberts' latest offering, We're Being Set Up for Wider War in the Middle East. As an economist and former Assistant Secretary of the Treasury [Reagan Administration] – he is more than qualified to understand the inter-relationships between economics and politics.
Remember folks, knowledge is power.
Japan's stock market was closed for holiday on Monday. North American equities got the week off to a mixed start with the DOW gaining 8.01 to 10,747.36, the NASDAQ ahead by .30 to 2.037.70 and the S & P down 1.70 1,234.50. NYMEX crude oil futures fell 1.73 to end the day at 75.30 per barrel.
On foreign exchange markets the U.S. Dollar Index gained .90 to close at 86.68.
Interest rates were marginally higher [1 – 3 basis points] across the board with the benchmark 2-year note ending the day at 5.12%, the 5-year at 5.04% and the 10-year at 5.08%.
In the precious metals arena, COMEX gold futures were mauled 16.00 to 651.80 while COMEX silver futures fared worse on a percentage basis – down .47 to 11.10. The XAU shed 4.94 to 140.17 while the HUI lost 12.13 to close at 328.05.
On tap for tomorrow, June PPI data is due at 8:30 a.m. – expected +.2% vs. prior +.2%. Core expected +.2% vs. prior +.3%. May TIC data is due out at 9:00 a.m. – last reported +46.7B.
Wishing you all a most pleasant July evening!
© 2006 Rob Kirby