Monday, February 27, 2012

QE is Inflationary, Part III: "Euphoria Shifts From Stocks To Commodities"

Following up on Friday afternoon's "Morgan Stanley: QE Doesn’t Translate To Rising Commodity Prices".
I was going to rebut some of the sillier assertions including this bit:
....The fact that raw materials like industrial metals and agricultural commodities haven’t soared as high as global equities since October is evidence, Morgan Stanley analysts said in a research note late Thursday, that “unconventional monetary stimulus is less inflationary than (some) suppose.”....
And then thought "Screw it, you can either do a thesis defense or you can make bets, no need to do both".
A bit later I was shown this piece from ZeroHedge:
Silver and Gold remain the major outperformers year-to-date but the rest of commodities - most notably oil is catching up very fast having over taken stocks this week. It appears that the new-found flood of liquidity that we have been so passionately banging the table on for weeks, has found its way into the energy complex as European Sovereigns, European Financials, European Stocks, and US Stocks have all flattened or turned down as Crude and WTI surge. And as a hint to anyone who hasn't jumped on this tidal movement yet, one thing to note is that unlike stocks, commodities always have the risk of marginal or weak hands being shaken out via CME...margin hikes.
Year to date performance shows Crude is now outperforming US equities and closing in on Gold's great run. Silver remains the double-levered liquidity trade-d'annee.

But how has the flood of liquidity dooshed   sloshed around the world of global assets...

(Click chart for larger version)
It appears there have been five periods to this post LTRO love-fest with nominal values of assets.
1) Post the LTRO and through January (black dotted rectangle), markets generally tracked each other higher in a narrow liquidity and euphoria-driven range with US Stocks having a higher beta than most assets in general (as everything was floated up with the best performers being the worst performers of last year); this bullet-proof rally had just begun to fade as everyone waited for something real to confirm what was before their eyes...

2) As January ended and February began, the most wondrously 'adjusted' NFP print in the US re-engaged the liquidity pump and those most beaten down of last year's assets were grabbed with a vengeance once again as European Stocks, US Stocks, European Sovereigns & Financials, and Brent Crude all levitating rapidly while WTI Crude fell (as the spread rose on Middle-East tensions). European stocks were the major winner in this period as financials flew on the LTRO solution and so the liquidity sloshed into that bucket more broadly....MORE