But how much of this commodity rebound is due to dollar weakening as opposed to any real demand or commodities being undervalued? The UK is not exactly known as a strong producer of commodities, yet the pound rose dramatically against the dollar while all this was going on.

I have a post out shortly addressing just that concern. I am of the view that the inter-relationship between these events is not in the fundamentals but in the liquidity.


By that I mean, there are leveraged players, hedge funds, speculators, banks and the like that have gotten themselves in a pickle and need to shed risky assets This had all asset classes falling simultaneously AND was responsible for large currency moves as carry trades unwound.



All we have done here is to ease the stress on the system by allowing these leveraged players the breathing room to de-leveraged in a more organized fashion. Hence, the snapback from the panic selling in these markets.



But, we cannot andshould not allow these players to continue with their current leverage ratios. We need some systemic changes here and that is going to mean regulation. While Bush is in office. This will not happen, so we are in a holding pattern until then. As a result, expect to see some good gains in many of these markets.