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  • May 21, 2008 at 7:20 PM #12812
    capeman
    Participant

    [img_assist|nid=7642|title=Fed Liquidity Flood Causing Commodity Price Increases?|desc=|link=node|align=left|width=466|height=319]

    With everyone pissed over the price of oil reflecting in gas prices and increases in everything from wheat to rice to metals I wanted to finally put some data up here to back one of my arguments. Has the Fed’s attempt to prop the financial system and the markets via throwing massive liquidity into the markets caused a sizable speculative rise in commodities?

    The rise in oil futures has seemed to follow pretty well the lowering of the Fed discount and FFR rates starting from the surprise cut in the discount rate back in August of ’07. If one follows the trend in rate cuts and the use of Slosh and eventually special facilities such as the TAF one can see that there seems to be a compelling correlation between Fed actions, the directly resulting devaluing of the USD and concurrent rise in commodities futures prices.

    For reference, DBC is an ETF representing gains in a range of commodity futures somewhat heavily weighted in Crude Futes. What is a nice topper on this one is the effect of a noticable increase in Slosh today >$20 increase in daily causing an acute rise of DBC gains on the same day (likely heavily due to the ~$5 rise in crude futures today.)

    The absence of TAF funding from August to December of ’07 leads me to believe that the Discount window was working to produce the needed liquidity during this period. Once collateral being posted was not of the quality acceptable at the window the need for special lending facilities such as the TAF and eventually TSLF and now PDCF are required to prop financial institutions and in turn effect commodities and cause short term inflation.

    It’ll be pretty interesting to see once the Fed begins USD protection and reverses liquidity flow what will happen to those long commodities and short the USD.

    *The Slosh Report provided the slosh data and Karl Denninger Ticker provided the lightbulb.

    http://market-ticker.denninger.net/2008/05/windup-wednesday.html

    May 21, 2008 at 8:31 PM #209415
    kewp
    Participant

    Well, duh.

    Nobody wants real estate or equities so where else are the speculators going to put their money?

    In the stuff *everyone* has to pay for!

    May 21, 2008 at 8:31 PM #209477
    kewp
    Participant

    Well, duh.

    Nobody wants real estate or equities so where else are the speculators going to put their money?

    In the stuff *everyone* has to pay for!

    May 21, 2008 at 8:31 PM #209507
    kewp
    Participant

    Well, duh.

    Nobody wants real estate or equities so where else are the speculators going to put their money?

    In the stuff *everyone* has to pay for!

    May 21, 2008 at 8:31 PM #209529
    kewp
    Participant

    Well, duh.

    Nobody wants real estate or equities so where else are the speculators going to put their money?

    In the stuff *everyone* has to pay for!

    May 21, 2008 at 8:31 PM #209561
    kewp
    Participant

    Well, duh.

    Nobody wants real estate or equities so where else are the speculators going to put their money?

    In the stuff *everyone* has to pay for!

    May 21, 2008 at 10:27 PM #209460
    HereWeGo
    Participant

    I love that chart. The only thing missing from the chart is the debt monetization efforts by the Fed. The expansions of the TSLF and the PDCF (which is sort of unnecessary, as the money center banks can always arbitrage with the IBs to dump to the TSLF) are unbelievably important. $250B of monetization, gee, where do you think a large portion of that capital was deployed?

    Actually, that chart is even more compelling if you roll the start date back to Jan1, 2006.

    May 21, 2008 at 10:27 PM #209524
    HereWeGo
    Participant

    I love that chart. The only thing missing from the chart is the debt monetization efforts by the Fed. The expansions of the TSLF and the PDCF (which is sort of unnecessary, as the money center banks can always arbitrage with the IBs to dump to the TSLF) are unbelievably important. $250B of monetization, gee, where do you think a large portion of that capital was deployed?

    Actually, that chart is even more compelling if you roll the start date back to Jan1, 2006.

    May 21, 2008 at 10:27 PM #209554
    HereWeGo
    Participant

    I love that chart. The only thing missing from the chart is the debt monetization efforts by the Fed. The expansions of the TSLF and the PDCF (which is sort of unnecessary, as the money center banks can always arbitrage with the IBs to dump to the TSLF) are unbelievably important. $250B of monetization, gee, where do you think a large portion of that capital was deployed?

    Actually, that chart is even more compelling if you roll the start date back to Jan1, 2006.

    May 21, 2008 at 10:27 PM #209574
    HereWeGo
    Participant

    I love that chart. The only thing missing from the chart is the debt monetization efforts by the Fed. The expansions of the TSLF and the PDCF (which is sort of unnecessary, as the money center banks can always arbitrage with the IBs to dump to the TSLF) are unbelievably important. $250B of monetization, gee, where do you think a large portion of that capital was deployed?

    Actually, that chart is even more compelling if you roll the start date back to Jan1, 2006.

    May 21, 2008 at 10:27 PM #209606
    HereWeGo
    Participant

    I love that chart. The only thing missing from the chart is the debt monetization efforts by the Fed. The expansions of the TSLF and the PDCF (which is sort of unnecessary, as the money center banks can always arbitrage with the IBs to dump to the TSLF) are unbelievably important. $250B of monetization, gee, where do you think a large portion of that capital was deployed?

    Actually, that chart is even more compelling if you roll the start date back to Jan1, 2006.

    May 21, 2008 at 10:35 PM #209475
    capeman
    Participant

    I wanted to add the other facilities but I couldn’t get ahold of the TSLF and PDCF values. Those add about $200B more pushing the Fed to almost 60% of it’s balance sheet committed to mostly shady transactions.

    Take the chart back to Jan 1 2006 and the DBC plot goes nearly flat for those two years. I might add that on if I can get all of the data.

    May 21, 2008 at 10:35 PM #209538
    capeman
    Participant

    I wanted to add the other facilities but I couldn’t get ahold of the TSLF and PDCF values. Those add about $200B more pushing the Fed to almost 60% of it’s balance sheet committed to mostly shady transactions.

    Take the chart back to Jan 1 2006 and the DBC plot goes nearly flat for those two years. I might add that on if I can get all of the data.

    May 21, 2008 at 10:35 PM #209567
    capeman
    Participant

    I wanted to add the other facilities but I couldn’t get ahold of the TSLF and PDCF values. Those add about $200B more pushing the Fed to almost 60% of it’s balance sheet committed to mostly shady transactions.

    Take the chart back to Jan 1 2006 and the DBC plot goes nearly flat for those two years. I might add that on if I can get all of the data.

    May 21, 2008 at 10:35 PM #209587
    capeman
    Participant

    I wanted to add the other facilities but I couldn’t get ahold of the TSLF and PDCF values. Those add about $200B more pushing the Fed to almost 60% of it’s balance sheet committed to mostly shady transactions.

    Take the chart back to Jan 1 2006 and the DBC plot goes nearly flat for those two years. I might add that on if I can get all of the data.

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