Waiting for the cheques to clear….

…..and a January collapse

PERHAPS commodity and equity markets will continue to keep denying the weak fundamentals until bonus cheques for fund managers etc have been signed and are in the bank.

Fund managers, because of the way they are benchmarked, will be desperate to stick close to the performance of stock market indices, said John Authers in this article from the Financial Times.

“It is a disincentive (the benchmarking) to making a big move either into our out of the market even if a fund manager has a strong view that we are heading for a rally or a fall,” he wrote.

“This behaviour may yet allow the current stock rally to persist in spite of the disappointing economic data.”

The same, I guess, could apply to crude – blowing the case for $45 a barrel by the end of the year out of the water.

Barclays Capital is, in fact, predicting a rise in oil to $70-80 a barrel over the next month with Goldman Sachs forecasting $85 a barrel by end-2009.

So once the bonus cheques have cleared, a combination of sobering economic facts and investors getting out while they are ahead could cause a steep dip in January.

Might we then see another temporary bottom to crude, equities etc and further buying opportunities?

This will depend on government cash remaining cheap and plentiful and an improvement in the real economic outlook.

My bet is on a prolonged trough because we are back to 2006 demand levels in chemicals and presumably lots of other stuff  – before the credit-fuelled false-bottomed boom.


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