To: ild who wrote (59682 ) 4/27/2006 8:20:20 PM From: russwinter Read Replies (4) | Respond to from today's Contrary Investor: So let’s step into the current environment where it is becoming clear to us, and we very much believe to the financial markets themselves, that commodity oriented assets are now the growing recipient at the margin of the current round of domestic and global liquidity generation. Once again we believe we are seeing the rolling thunder asset class price beneficiary baton of excess liquidity being passed to yet another asset class - hard assets. Is this a one-way Street of positive influence on the US and really broader global economy? Will it engender the broader positive influence stock and real estate appreciation did on US household spending and general sense of financial well being? Or has this flow of liquidity into the asset class known as commodities now become a bit of an unintended consequence for central bankers globally? In other words, is the current flight of excess liquidity to commodity-oriented assets actually acting to inhibit or be a type of "tax" on real world economic growth potential looking ahead? And if that’s indeed the case, as we believe it is, does this inhibiting factor generate the need for every greater liquidity expansion to compensate for this real world commodity pricing pressure? In other words, have we now progressed beyond the virtuous liquidity cycles of the past decade that initially uplifted equities and real estate values to perhaps something more of a current vicious cycle in that accelerating hard asset input costs (commodity costs) are now the manifestation of excess liquidity? If indeed this is even semi close to the mark in terms of correct interpretation, then the current cycle of liquidity generation and its direct consequences will be much different than what was the influence of macro liquidity expansion over the past decade. After all, when gold, silver, zinc, copper or other metals prices zoom higher, are household net worth statements rising alongside as was the case with stocks and real estate? Does a great quarter for crude and unleaded gas futures make households feel wealthier? Plain and simple, very much unlike the asset price beneficiaries of liquidity past, households do not own energy futures, the metals or other industrial commodities. In fact, we suggest that US household financial well being is negatively correlated to price movements in the broad commodity complex.
