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Cotton futures market comes under further pressure
03 Oct '08
5 min read
In the process massive trade and current account deficits were racked up. As long as rising asset prices like stocks and real estate provided a vehicle to create additional credit with, this scheme was able to continue. However, now that the credit bubble is imploding, it will take major changes to get the economy back on track. In the long run no economy gets away with consuming more than it produces, because sooner or later foreigners are no longer willing to provide the necessary vendor-financing.
Even though the dollar has 'strengthened' against other currencies recently, as it has benefited from the repatriation of foreign assets and the fact that other economies are facing problems of their own, we do not believe that this dollar strength is going to be long lived.
The massive money printing we are experiencing will eventually lead to a weaker currency and higher inflation, which may be the only thing commodity bulls can hang their hats on right now, because from a consumption point of view there seems to be a lot of pain ahead.
By how much consumption will suffer is anybody's guess at the moment, a lot will depend on whether confidence can be restored to some degree. The events of the last two weeks have sent shock waves through the economy and as we have seen with car sales last month, consumption has started to freeze up rather rapidly.
As we have seen over these past few weeks, fundamental and technical analysis seems to be switched off in times of panic. There should have been solid support near 65/66 and then again at the multi-year weekly support at 58 that should have prompted bulls to put up a fight, but the market went through these levels as if they didn't exist.
These are extraordinary times that require a lot of caution when approaching the market and even though cotton may seem cheap at the current level, there is no guarantee that it can't get cheaper before we see a recovery.
Even though the dollar has 'strengthened' against other currencies recently, as it has benefited from the repatriation of foreign assets and the fact that other economies are facing problems of their own, we do not believe that this dollar strength is going to be long lived.
The massive money printing we are experiencing will eventually lead to a weaker currency and higher inflation, which may be the only thing commodity bulls can hang their hats on right now, because from a consumption point of view there seems to be a lot of pain ahead.
By how much consumption will suffer is anybody's guess at the moment, a lot will depend on whether confidence can be restored to some degree. The events of the last two weeks have sent shock waves through the economy and as we have seen with car sales last month, consumption has started to freeze up rather rapidly.
As we have seen over these past few weeks, fundamental and technical analysis seems to be switched off in times of panic. There should have been solid support near 65/66 and then again at the multi-year weekly support at 58 that should have prompted bulls to put up a fight, but the market went through these levels as if they didn't exist.
These are extraordinary times that require a lot of caution when approaching the market and even though cotton may seem cheap at the current level, there is no guarantee that it can't get cheaper before we see a recovery.
Plexus Cotton Limited
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