SWEET SPOT

 Investors seem to have found themselves at something of a sweet spot. Wall Street's big investment banks think the dollar is going down. They see metals' prices recovering on account of dwindling spare capacity and they see a broader recovery.

Investors are finding lower interest rates are finally filtering through and they seem to believe that valuations became too cheap. It's a done deal that we seem to have a rally on our hands. The dollar has become the world's funding currency as far as carry traders are concerned and the appeal of shorting the dollar to fund equity investments appears to be a far less risky proposition than it used to be.

The U.S. Treasury auctioned a further $70 billion in bonds this week to bring the 2009 total to $1.4 trillion. Investors showed up to buy government debt like a free Central Park benefit gig for Simon & Garfunkel. This seemingly insatiable appetite for fixed income is providing a fabulous backdrop for investors. Money is cheap from the world's central banks, the market has practically no apparent fears over prospects for inflation - hence bond yields are in freefall - and a sliding dollar is accentuating the appearance of recovery by pushing up raw material prices acting as a surrogate for physical demand.

The euro rose to an 11-month high against the dollar. The S&P 500 index is at a one-year high, while 30-year bonds have a yield at the lowest in six months. Investors have not been able to kick off their shoes and bask in the sunshine like this seemingly for years!

Commodity prices were mixed on Thursday. Crude oil prices rose after an OPEC meeting concluded with no changes to its plan. Output will remain the same, while investors reckon that if the economy recovers, returning demand will only serve to boost the cost going forward.

Sugar prices rose falling victim to a reduction in the global sugar mountain. Mexico recently increased its input quotas as domestic output declined. Indian output may decline to 15 million tons on account of inclement weather. That compares to 26.4 million tons last year. Fears that Indian will start to build stocks through imports helped send sugar prices up by 4% Thursday. Higher prices are not deterring global buyers due to a diminishing global stockpile. A lack of rain has caused insufficient Indian crop production, while the excess rainfall in Brazil's center south region, which produces 80% of its sugar, is expected to produce one quarter less this season.

Copper futures eased after a 10th straight rise in inventories as reported by the warehouses used by the London Metals Exchange. Like sugar futures, the price of copper has also doubled so far this year. In the case of sugar, the world's supply is shrinking, while demand for copper has been estimated to increase. But fears that the Chinese State buyers won't be chasing copper any higher are causing some investors to unleash stale longs. When might they start buying again one wonders?

The weather premium enjoyed by orange juice futures fell flat Thursday as the likelihood grew that Hurricane Fred would dissipate into a tropical storm by the weekend. The lesser potential for crop damage sent orange juice futures to a two-month low. With the hurricane season ending November 30, the chances of an acceleration of activity grow slimmer by the day now.

Meanwhile the recent slide in the value of the U.S. dollar along with cratering corn and soybean prices has boosted demand for the nation's top two crops. Prices of both rose Thursday after a near three-year low for corn prices this week.

So the excitement is endless in the commodity markets. The world appears a calmer place as we remember the assault on New York city of eight years ago today. It would appear that the dust has settled as we approach the anniversary of the Lehman collapse too, or are we just becoming too complacent?

The Supreme Council of the Secret Order of Jurojin

Tyche Research