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Reuters/CRB Futures Index

Fascinating chart, via Jeff Saut: 

Reuters/CRB Futures Index

Jeff notes the combined impact of Liquidity and Risk Appetite on the markets:

"Lastly, we believe liquidity certainly plays a role and currently the U.S. monetary base is exploding. Moreover, it is not just our money supply that is surging but Australia’s (+13% year-over-year), England’s (+13%), the Euro Zone’s (+9.3%), Korea’s (+10.3%), China’s (+16.9%), etc.

Yet as we have suggested, while liquidity is unquestionably a driver of asset classes, if investors are unwilling to take that liquidity and buy something with it asset classes go nowhere. Manifestly, you can throw all the liquidity you want at the markets and if investors have no “risk appetite” they will merely take said liquidity and stuff it in a money market fund.

We, therefore, have argued that investors’ risk appetite is the ultimate driver of asset prices and after the nearly unprecedented rally from July 2006 to February 2007, participants’ risk appetites are currently high. When this will change is unknowable, but change it will. Yet as Charlie concludes, “While we are in uncharted waters in this regard, no one can foresee a financial accident, much less know its timing.”

via Raymond James Investment Strategy

Monday, February 26, 2007 | 02:00 PM | Permalink | Comments (14) | TrackBack (0)
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Comments

Interesting. Here's a hypothesis for you though - if you look at oil which has been a primary driver of the overall commodity rise it's almost showing an 'S-curve' like shift from one steady-state to another. That shift appears to coincide with China's serious entry into the WTO. Courtesy of the STL Fed and FRED one can see the graph here:
http://research.stlouisfed.org/fred2/series/OILPRICE?&cid=98

I wonder if it would be possible to look at commodities for a longer timeframe ? My guess is that while we'll see a continued growth in worldwide demand with the BRICs we've gone thru the state-shift and will now by oscillating around an upward trends. Give or take a war, civil insurrection or five.

Posted by: dblwyo | Feb 26, 2007 2:35:48 PM