I am on a hiatus this weekend, so I'd just be posting some charts of vital interests along with my pithy comments.
The above charts from stockcharts.com reveals of near simultaneous breakouts of key commodities, in particular, Oil (WTI), Gasoline (GASO) and copper, while the industrial metal group (DJUSIM) is at the resistance levels.
Given the mainstream definition, where growth is associated with "inflation" [relative to the output gap], this perspective interprets the rise of commodity prices sensitive to the economy's growth as alluding to "recovery". As earlier commented, instead we think these are signs of a transitional formative bubble.
We'd have to admit that not every commodities has been on the run; and this has been evident in agriculture (DBA-Powershares DB Multi-sector commodity trust agriculture fund), particularly among grains, and in natural gas (NATGAS). The latter saw a recent spike, but remains on a medium term downtrend.
Albeit the performance of the Agriculture sector remains mixed to lower, with only the Livestock index (DJALI) seemingly at the outperform phase.
Meanwhile, the CRB index (CRB) remains at a trading range, despite the run in the metals and energy, to reflect on this balance.
Nevertheless, commodities do not usually move in concert. The only exception is during the 2008-2009.
As Howard Simons points out in Minyanville, (bold highlights mine)
``Note the large jump in late 2008 and early 2009; that wasn't convergence during a bull market in commodities, that was the period when all commodities along with all stocks, all real estate, all corporate bonds, and a handful of markets none of us knew could roll over and die all rolled over and died together in the financial market musical tribute to mass cyanide poisoning, Jonestown Is Your Town.
``Prior to that episode, the one-year rolling correlation of returns for these indices had never exceeded 0.51 and had, in fact, been negative. We're in the process now of moving back toward randomness."
My inference is that the difference then was that global equity markets were headed lower and much of the residual money from previous looseness found its way to commodities, which made a belated peak, even as the world economy had been contracting and money had been tightening. Perhaps this led to the anomaly of intra commodity convergence.
Meanwhile the Lehman episode, which resulted to a global banking gridlock, was the proverbial nail to coffin that brought almost all assets to its knees (except for bonds and the US dollar).
With the Bernanke Put clearly in place, which assures a continued flow of liquidity underpinned by the implied gargantuan support for her banking system, the reversion to randomness only suggest that inflation has yet to turn widespread.
This only supports our view that we are in the benign stage or in the "sweetspot" of inflation [see previous explanations in Philippine Markets And Elections: What People Do Against What People Say and Does Falling Gold Prices Put An End To The Global Liquidity Story?]
Finally, the actions in the equity, commodity and bond markets seem to be reinforcing the same story, a return of inflation.
Long term bonds as seen in the 30 year (TYX) and the 10 year yields (UST10Y) are seen inching higher.
Though the short term vis-a-vis the long term yields (UST10Y:$UST1 year-10 year versus 1 year and TNX:UST1Y 30 year versus 1 year) remain steep, they appear to have reached its zenith.
And competition to acquire materials for long term projects seem to be forcing up short term yields relative to long term yields [see Is The Recovery In Global Manufacturing A Symptom Of The Next Boom Bust Cycle?]
Yet the long end is looking at higher rates most possibly from inflation. As Morgan Stanley's Richard Berner and David Greenlaw recently wrote,
``In our view, heavy Treasury coupon issuance will combine with a revival in private credit demands to lift real yields. Moreover, uncertainty about inflation and the fiscal outlook will boost bond risk premiums."
Deflation, where?
The above charts from stockcharts.com reveals of near simultaneous breakouts of key commodities, in particular, Oil (WTI), Gasoline (GASO) and copper, while the industrial metal group (DJUSIM) is at the resistance levels.
Given the mainstream definition, where growth is associated with "inflation" [relative to the output gap], this perspective interprets the rise of commodity prices sensitive to the economy's growth as alluding to "recovery". As earlier commented, instead we think these are signs of a transitional formative bubble.
We'd have to admit that not every commodities has been on the run; and this has been evident in agriculture (DBA-Powershares DB Multi-sector commodity trust agriculture fund), particularly among grains, and in natural gas (NATGAS). The latter saw a recent spike, but remains on a medium term downtrend.
Albeit the performance of the Agriculture sector remains mixed to lower, with only the Livestock index (DJALI) seemingly at the outperform phase.
Meanwhile, the CRB index (CRB) remains at a trading range, despite the run in the metals and energy, to reflect on this balance.
Nevertheless, commodities do not usually move in concert. The only exception is during the 2008-2009.
As Howard Simons points out in Minyanville, (bold highlights mine)``Note the large jump in late 2008 and early 2009; that wasn't convergence during a bull market in commodities, that was the period when all commodities along with all stocks, all real estate, all corporate bonds, and a handful of markets none of us knew could roll over and die all rolled over and died together in the financial market musical tribute to mass cyanide poisoning, Jonestown Is Your Town.
``Prior to that episode, the one-year rolling correlation of returns for these indices had never exceeded 0.51 and had, in fact, been negative. We're in the process now of moving back toward randomness."
My inference is that the difference then was that global equity markets were headed lower and much of the residual money from previous looseness found its way to commodities, which made a belated peak, even as the world economy had been contracting and money had been tightening. Perhaps this led to the anomaly of intra commodity convergence.
Meanwhile the Lehman episode, which resulted to a global banking gridlock, was the proverbial nail to coffin that brought almost all assets to its knees (except for bonds and the US dollar).
With the Bernanke Put clearly in place, which assures a continued flow of liquidity underpinned by the implied gargantuan support for her banking system, the reversion to randomness only suggest that inflation has yet to turn widespread.
This only supports our view that we are in the benign stage or in the "sweetspot" of inflation [see previous explanations in Philippine Markets And Elections: What People Do Against What People Say and Does Falling Gold Prices Put An End To The Global Liquidity Story?]
Finally, the actions in the equity, commodity and bond markets seem to be reinforcing the same story, a return of inflation.Long term bonds as seen in the 30 year (TYX) and the 10 year yields (UST10Y) are seen inching higher.
Though the short term vis-a-vis the long term yields (UST10Y:$UST1 year-10 year versus 1 year and TNX:UST1Y 30 year versus 1 year) remain steep, they appear to have reached its zenith.
And competition to acquire materials for long term projects seem to be forcing up short term yields relative to long term yields [see Is The Recovery In Global Manufacturing A Symptom Of The Next Boom Bust Cycle?]
Yet the long end is looking at higher rates most possibly from inflation. As Morgan Stanley's Richard Berner and David Greenlaw recently wrote,
``In our view, heavy Treasury coupon issuance will combine with a revival in private credit demands to lift real yields. Moreover, uncertainty about inflation and the fiscal outlook will boost bond risk premiums."
Deflation, where?
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