Bond rally nearing an end?
- Thread starter gharghur2
- Start date
How can you distinguish between rising commodity prices due to supply and demand, versus inflation?
For example, if every chinese gets a car in the next 10 year (like americans already have) then there will be a real increase in demand for gasoline that will push up energy prices when the supply doesn't keep up.
Inflation is the decrease in purchasing power of a currency created by an increased supply of that currency. The fed, by raising rates, attempts to constrain the supply of money by making it less desirable to borrow as rates go up. Isn't this just a monetary phenomenom that has nothing to do with commodity prices? I can see the relation with gold since that has been used as currency in the past. But even this falls apart. If you cornered the market in gold and owned it all wouldn't it then be a worthless pile of yellow metal since it has no real important commercial use. No one would NEED to buy it from you.
In the global market place that commodities trade in no central bank has the ability to control those prices. The fed has the best shot since it controls the worlds reserve currency but I don't think that will be enough. As emerging economies become more prosperous there will be an inherent increase in demand for practically everything. How do you stop this without throwing the world into a global recession/depression? And even that would only be a temporary reprieve.
Don't forget the worlds population has grown 50% in just the last 30 years. That's a huge increase in demand for the limited resources available on this planet.
BTW, great thread guys. I hope I haven't taken it off topic since I didn't mention any actual trading info.
For example, if every chinese gets a car in the next 10 year (like americans already have) then there will be a real increase in demand for gasoline that will push up energy prices when the supply doesn't keep up.
Inflation is the decrease in purchasing power of a currency created by an increased supply of that currency. The fed, by raising rates, attempts to constrain the supply of money by making it less desirable to borrow as rates go up. Isn't this just a monetary phenomenom that has nothing to do with commodity prices? I can see the relation with gold since that has been used as currency in the past. But even this falls apart. If you cornered the market in gold and owned it all wouldn't it then be a worthless pile of yellow metal since it has no real important commercial use. No one would NEED to buy it from you.
In the global market place that commodities trade in no central bank has the ability to control those prices. The fed has the best shot since it controls the worlds reserve currency but I don't think that will be enough. As emerging economies become more prosperous there will be an inherent increase in demand for practically everything. How do you stop this without throwing the world into a global recession/depression? And even that would only be a temporary reprieve.
Don't forget the worlds population has grown 50% in just the last 30 years. That's a huge increase in demand for the limited resources available on this planet.
BTW, great thread guys. I hope I haven't taken it off topic since I didn't mention any actual trading info.
I don't understand all this Fed talk. According to the futures market, the Fed will still raise rates in May and will raise again in June or August. So the Fed funds rate will be 5.25% while the current 90-day rate is 4.71 and the 10-yr rate is 4.97. I think both will go up (though I do system trading and what I think is meaningless) and this market reaction will be short lived.
Even stranger is the stock market reaction. A 2% rally on this news? You've got to be kidding me!
Even stranger is the stock market reaction. A 2% rally on this news? You've got to be kidding me!
Hi Guys,
Stocks: panic short covering I'd imagine.
Bonds: didn't rally much on the FED news.
Dollar/Euro: finishing up their corrective patterns.
2yr/90day rates: -12bps on the 2yr last few days, 90day flat.
cRUDE/Gold/CRB: all new highs today.
Everything was in demand today! except the greenback.
Agree about worldwide demand for commodities due to increases in population and economies of scale. However, the markets pay attention only to the steady rising prices of hard assets: housing, raw materials, etc. Overeas demand, created by growing economies does nothing for the higher costs passed on to US consumers because of these foreign demands. Look at the rising price of cRUDE, generally considered to be caused by the worldwide imbalance of demand created by China's industrialization, and partly by the Iraq crisis. It's still inflationary in this country.
The FED has acted appropriately: being predicatable, steady and working towards normalizing rates to long term standards. I'm certain, any one of Greenspan's predecessors would have totally failed by now in reacting to the rising price of crude, let alone commodities. They need to stay the course, even if it means an economic slowdown in this country. Slowdowns, we can easily recover from, stagflation is entirely another story.
Stocks: panic short covering I'd imagine.
Bonds: didn't rally much on the FED news.
Dollar/Euro: finishing up their corrective patterns.
2yr/90day rates: -12bps on the 2yr last few days, 90day flat.
cRUDE/Gold/CRB: all new highs today.
Everything was in demand today! except the greenback.
Agree about worldwide demand for commodities due to increases in population and economies of scale. However, the markets pay attention only to the steady rising prices of hard assets: housing, raw materials, etc. Overeas demand, created by growing economies does nothing for the higher costs passed on to US consumers because of these foreign demands. Look at the rising price of cRUDE, generally considered to be caused by the worldwide imbalance of demand created by China's industrialization, and partly by the Iraq crisis. It's still inflationary in this country.
The FED has acted appropriately: being predicatable, steady and working towards normalizing rates to long term standards. I'm certain, any one of Greenspan's predecessors would have totally failed by now in reacting to the rising price of crude, let alone commodities. They need to stay the course, even if it means an economic slowdown in this country. Slowdowns, we can easily recover from, stagflation is entirely another story.
If people borrow less there is less money for consuming commodities through personal consumption or production (with less demand for money comes less demand for commodities).
Greetings everyone,
I have a question for any of you guys.
At this time almost all equity markets around the world are at multiyear highs, same goes for energy/fuel, metals, the CI(old CRB) index, real estate markets and the list goes on and on.
The world is flush with cash by what seems to be a war between central banks to see who can print the most and spend the most.
This is unsustainable.
There was a time in the good old days when money coming out of one market/sector or commodity would go to another one, keeping a certain balance within the markets.
Today if you sell your gold, what are you going to buy ? For that matter if you sell anything else, including your real estate for cash, what do you have? Fiat currencies which many argue will be worthless pieces of paper when reality sets in?
My question is, has this insane worldwide cash liquidity we have today ever happened before in history ?
Thanks !!
I have a question for any of you guys.
At this time almost all equity markets around the world are at multiyear highs, same goes for energy/fuel, metals, the CI(old CRB) index, real estate markets and the list goes on and on.
The world is flush with cash by what seems to be a war between central banks to see who can print the most and spend the most.
This is unsustainable.
There was a time in the good old days when money coming out of one market/sector or commodity would go to another one, keeping a certain balance within the markets.
Today if you sell your gold, what are you going to buy ? For that matter if you sell anything else, including your real estate for cash, what do you have? Fiat currencies which many argue will be worthless pieces of paper when reality sets in?
My question is, has this insane worldwide cash liquidity we have today ever happened before in history ?
Thanks !!
USA 1970s, Germany 1930s, Japan 1980s,
I also noticed that once the price of oil rallies to the previous record price level at a time when that level is finally considered to be acceptable, the price keeps going for several dollars more in just a few days until a futures contract reaches a new symbolic price ($40,$55,$60,$70). Although I think oil is about to top, I think it will do it with a bang: $75 tomorrow or $80 in the next few days.
Thanks Johnny.
Were those cases, worldwide events or country specific? I think they were country specific, weren't they?
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( btw, I apologize for placing this question on this thread, but figured from the posts members have contributed that the audience is experienced )
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As for my contribution to this thread, all government bonds indices around the world are showing the same picture. A very long bear market that started last summer could last a decade.
