This past week was a wild one. Gold and silver broke out to new highs, the dollar weakened, China’s grumblings about the dollar’s value took on new urgency, and the Dow held at over 11,000 (although another $4.69 billion thin-air money injection on Friday might have helped some).
How do we make sense of all this?
Unfortunately there are no compelling fundamental reasons to support what we are seeing unless you consider thin-air money printing, or the promise thereof, to be a fundamental driver. While I understand how the various Wall Street gamers can consider front-running new Federal Reserve monetary excesses by piling into risk assets, trying to participate in such activities is raw speculation at best, and blind gambling at worst.
This past week we also saw Ben Bernanke hit the road to try and convince everyone that more thin-air money being handed to the big bankers and other financial institutions is essential because inflation is too low.
Bernanke Sees Case for `Further Action’ With Too-Low Inflation
Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted because inflation is too low…
“At current rates of inflation, the constraint imposed by the zero lower bound on nominal interest rates is too tight” and the “risk of deflation is higher than desirable,” Bernanke said.
The only problem with this view is that it’s not quite right, at least when we view the world of commodities. Here’s a short list of various commodities and their performance year-to-date:
Cattle (lb)………………..+12.0%
Coffee (lb)……………….+36.9%
Corn (bu)…………………+37.3%
Cotton (lb)……………….+46.7%
Lumber (1000 bd.ft.)..+32.9%
Orange Juice (lb)……..+19.7%
Soybeans (bu)………….+13.2%
Wheat (bu)……………….+29.8%
Viewing such volatile commodities over the short haul can be misleading because they rocket up and down quite routinely.
by cmartenson 
