Wednesday, November 18, 2009

Commodity reflation recap

As this collection of charts shows, there's an awful lot of upward price action out there in the world. Two things can explain this: a global revival of demand, and a global monetary reflation. Most importantly, the information revealed by these real-time, market-determined prices is directly contradictory to the pervasive concerns about the durability and breadth of the current recovery and the effectiveness of monetary policy. All of these charts reflect prices as of today or yesterday, and they are all at or very near their highs for the year, and not very far from reattaining their previous all-time highs that were set last year.












2 comments:

  1. Scott,
    I look at all these charts and I ask what started in 2002? I see a "compassionate conservative" who started this weak dollar policy. Bush Jr. handed out $600B in redistributive "stimulus" (I’m still waiting for my check!) But is it that simple? Rome clipped coins. Bush/Obama inflate. And we are all left with smaller coins.
    Jeff

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  2. The answer to this question is the same as the explanation for what's happening today. The Fed started easing aggressively in early 2001: that was followed shortly thereafter by an upturn in gold, and then an upturn in commodities in Nov. '01. By 2002 you had a monetary tailwind which joined with the beginnings of an upturn in the economy to produce what eventually proved to be a monster rally in commodities. The dollar didn't start weakening until Q2/02, well after the Fed had started its easing campaign. Bush's first stimulus didn't really do anything for the economy, but then he managed to cut taxes in mid-'03, and that was the rocket fuel for a boom.

    I don't think Keynesian stimulus figures in this picture at all. Keynesian stimulus doesn't work, if anything it only retards a recovery.

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