Now that the Dubai indigestion has passed, the markets appear to have returned to the old pattern: buy anything that will benefit from a liquidity bubble. Investors are making the bet that central banks will keep monetary policy loose for the foreseeable future.
We view this as a flawed assumption. However, the key to making money in the financial markets is to have a different opinion than the herd AND then have the herd see it your way. While we have a differing opinion, the herd has yet to see it our way.
The current sentiment in the financial markets is, “as long as money is free…why not buy something?” To date the beneficiaries of this mentality have been precious metals, oil and equities. As investors, we need to be one step ahead of the herd and therefore this morning we present the next area that could be recipient of liquidity love.
Our answer is commodities. While most commodities have enjoyed a nice uptrend over the last few months, they could still have room to run. Liquidity coupled with reduced South American crops could be all the fuel that is needed for grains and soft commodities to move higher.