Wednesday, May 20, 2009

Trends Persist

Take a look at the charts below:

For those who don't know, Libor is the interbank funding rate set by the British Bankers Association.  It's the rate that banks are able to borrow at,  Take 100-99.685 and you get .315 or .315%.  Banks are currently able to borrow for almost a quarter of a percent.  This is an inflationary rate that caused the housing bubble.  As long as this rate continues you can expect anything with a variable rate of return to rise in nominal value.  Soybeans, the S&P 500, Gold, Silver, Crude Oil, etc. will continue to rise if Banks are able to basically mint money.  This is bad for the rest of us because it will result in higher prices of the things we use every day, but it will make the holders of assets happier because of the nominal increase in the value of their assets. 

The big banks are simply pumping this as high as it can go, but once they stop pumping there will be some major dumping.  While fundamentally there are significant problems with the economy, as a trader you simply trade the price. The last two months, prices have been going up, so it would have behooved you to go along with it until it ends.  When will this trend end?  I don't know.  Only the bankers know and it will once again behoove you to sell when the pump can't be primed any longer. 

Disclosure: I have been long Eurodollar & Libor since mid March, Long gold, Long the S&P 500, Long Soybean Meal for the last 2 weeks.  This can and will change when these trends end.

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