October 21, 2008

Commodity Derivatives in US Banking System

"The following tells us directly that in addition to the influence of real world demand in the China's and India's of the world, financial sector demand for commodity exposure, driven by the need to arbitrage the yield spread between cost on and use of excess liquidity funding, has simply mushroomed. And in the world of commodities, "financial" or investment demand for the asset class as a whole has a direct and meaningful impact on real world prices and economics. But during the current go around, the direct and meaningful impact on real world global input prices is very much unlike the tangential excess liquidity positive effects of rising stock and residential housing prices in years back. After all, do stock or housing prices really influence actual input cost decisions of manufacturers and producers of goods globally? We think not. Commodities prices? A different story entirely, now aren't they?" Contrary Investor, April 27, 2006

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