Wednesday, April 13, 2005

liquidity bubbles

There have been a lot of very confusing market situations as of late. Inflation concerns ratchet up and bonds rally. The dollar strengthens due to rising interest rates on said inflation concerns while rates actually fall. The Dow Jones Transport stocks rally in the face of surging oil prices and then fall when crude retreats. What’s causing all this schizophrenic behavior?

Quite clearly the huge swings we have been seeing in everything from crude oil to soybeans have been fund driven. The sheer amount of money that is available to be thrown into various markets is staggering. And where did this money come from you might ask? Of course from our friendly central bank we would reply. The Federal Reserve has been printing money and thus providing liquidity in a manic fashion. This money has flowed first into stocks, then housing, then crude oil, and now commodities in general. It seems as there are liquidity driven bubbles popping up everywhere.

It's the big money pushing things around.

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