DENNIS GARTMAN SAYS RECESSION IS OVER
30 July 2009 by Cullen Roche
6 Comments
Good interview here with Dennis Gartman of the Gartman Letter. He has some excellent macro thoughts:
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Comments
Dennis say that Gary Shilling and David Rosenbeg say the recession is not over and will likely get worse, but he thinks we are now at the bottom of the recession and that the NBER will officially call it as ending sometime in Q3 2009. David’s outlook seems to be that there will be an inventory restocking that will look somewhat like recovery, but then there will be a relapse. More or less a W. Dennis did not declare a V, but was much more cautious. He also said that he agrees with Ian Shepardson that inflation will likely not be a significant risk for at least several years to come.
EUR/YEN good messure of the appetite for risk. That the EUR/YEN would need to go to about 138 for David Rosenberg and Gary Shilling to be declared wrong.
Dennis also said that speculation didn’t drive up oil prices because there is a short for every long in the commodity futures market. In my opinion that doesn’t holds water. The parabolic rise in oil and sharp fall smells of speculation and the final few weeks to $150 barrel of a short squeeze.
About shorts and longs matching in commodities futures markets, Martin Armstrong said the same thing (but about silver) on the old Princeton Economics Int’l website (which is archived now). I myself don’t have any personal knowledge whether this is true or not.
“In the midst of this controversy, there are those who have seriously distorted the facts about how the commodity market functions turning this entire issue of a silver manipulation into a battle between longs and shorts. It has been suggested that users and shorts have manipulated the price of silver lower for the past 15 years. Everything from derivatives, loans and leasing have been characterized as manipulations to keep silver prices lower in some giant conspiracy as if it were a religious persecution against the faithful. What is never discussed in this argument is the fact that in the commodity and futures markets both shorts and longs exist in EQUAL proportions. Futures and cash forwards DO NOT function in the same manner as stock markets. In stocks, short positions are a tiny fraction of the market as a whole. Stocks trade in the same manner as real estate in the sense that someone buys from a person who is already long. If the market goes up in price after the transaction, it is a direct function of demand and the person who sold you the stock or property before only lost the “opportunity” to make further gains. In the futures and forward markets, there can be NO long position unless someone sells it to you. These are contracts for future delivery. Hence, the futures and forward markets must at ALL times be equally balanced. For every long position there must be an equal and opposite short position.
In commodities, the MAJORITY of short positions in a given market are usually physical holders of that commodity or producers. The PURPOSE of the futures and forward markets is to facilitate trade – NOT to serve speculators! A farmer needs to lock in his profit on his crop so he does not go bankrupt if prices suddenly collapse below his cost. A farmer is merely trying to make a living – not gamble his entire future on what price the crop will be months in advance. Mining companies use the futures and forwards in the same manner. In many cases, small mining operations CANNOT qualify for a bank loan unless they HEDGE their future production at a fixed price against which the bank will then provide credit based upon that GUARANTEED future sale.”
http://web.archive.org/web/19980523090314/www.princetoneconomics.com/Research/SILVER/SV02208A.HTM
Well, I was involved in a project where we modelled a certain commodity market for one of the biggest global players and we had to able to forecast short squeezes to be successful. When people lose faith in their position, they have to cover on the spot market. Spot then deviates and takes future price (which is a function of spot and not a forecast of future prices) with it. Of course, everything can be rolled over but there is always an end to the front month and a limit to the number counterparties.
Rob:
EUR/YEN 138 is just a few points away…
It is a volatile pair, so I would say 158 is more reasonable to call those two guys out wrong.
We are heading higher. Q3 GDP will surprise. Will be too late to buy @ 1050-1100 range
I bet that excluding government spending Q3 GDP surprises to the downside. The Q2 numbers for private consumption were terrible. Much worse than expected. The Q1 QDP was revised down.