The following editorial was published in Price Perceptions issue #1338B on June 2, 2007
The Power of Money Flow...
In recent editorials, we have discussed excessive global liquidity. China, Japan, South Korea and other Asian nations continue to print money in record volume to maintain a cheap currency. A cheap currency boosts exports, limits imports, and maintains economic growth through exports to other nations.
The world’s largest economy, the US, also continues printing money in record volume to offset the historic trade deficit and government spending. The combination of historic money printing in the US and Asia has created a swelling tide of liquidity that constantly seeks new investment. It moves freely from one nation to another and from one investment medium to another.
In recent months, the tide of liquidity has bolstered global stock and bond markets, pushing equity indexes to record highs and holding interest rates artificially low.
A similar situation occurred during the Seventies. However, it was more or less limited to the US during that period. This time, the tide of liquidity is global and should be expected to last longer and push prices much higher than during the Seventies.
Following a period of record prices in one investment medium, liquidity begins seeking investment in areas that have not yet fully participated in the swelling tide of price increases. Although grain markets advanced sharply from last fall into winter, they have languished in recent months while fundamental forces continue gaining strength.
We believe the time is near for grain markets to enjoy a fresh infusion of global liquidity. Subscribers should be aware of the liquidity phenomenon and be on guard for signs of it beginning to move into grain markets. Preliminary signs indicate it may be in the beginning stage.
TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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