Market Watch II (amv)

Mumbai backs fg's interpretation. I believe that this is only part of the story. It's funny that "finance guys" - who after all believe in (weak) EMH  - see some rational bubbles whenever asset prices soar. Markets create liquidity; liquidity looks for the highest yield; Fed keeps risk-free yields low by creating even more liquidity; liquidity goes for risk; risk clusters and, eventually, markets collapse. I'm not arguing that this is wrong, even though I usually insist that such mechanism is conditional on regulations like hurdle rates imposed by legislation (like on life insurances). Certainly, the story is part of what is happening. The point is: when all you have is a hammer, everything looks like a nail! The commodity market, however, is extremely heterogeneous. To get an idea of what I mean, click here. Gold follows a different logic than nickel or tin, which again follow a different logic than wheat or rice. The increase in wheat prices, for instance, is due to standard market conditions. Bad global harvest increases excess demand and wheat prices simply reflect this fact. Further, a weak dollar increases the excess demand for dollar-denominated commodities. And even though it is only a part of the story, the US certainly underperforms relative to global trends.