Tuesday, October 20, 2009
This chart of copper prices looks like a lot of commodity price charts these days: prices are up significantly from last year's lows. I have been encouraged to see rising commodity prices all year long, because I think they mean that a) monetary policy has been accommodative, thus removing the threat of deflation which had weighed down equity markets late last year and earlier this year, and b) global economic activity is picking up, thus removing the threat of depression or deep recession that had weighed down all markets. In short, since early this year commodity prices have been telling us that the "sum of the market's fears" (i.e., depression and deflation) were completely misplaced. Thus it made sense to be bullish.
Meanwhile, the dollar has been declining against most other currencies since March, and is closing in on its all-time lows. It's not the end of the world, though, since we've been here before (the dollar was about 5% lower than it is today throughout last year's second quarter). But it's high time that the Fed took notice of both the dollar and commodity prices and started to reverse its quantitative easing before it's too late. Money is plentiful and inflation pressures are building. The stock market is confirming that the prospects for the future have brightened considerably. There is no longer a need for super-accommodative monetary policy.
Posted by Scott Grannis at 10:37 AM