World Markets - Step on the Gas

Recently Mark Mobius said on Bloomberg: The U.S. Federal Reserve’s bond purchase plan will further drive the rally for global stocks and push commodity prices “higher and higher,”...

Couldn't agree more...with Gold to its highest price ever recorded (pushing USD 1400 / ounce) [Note: Its not an inflation adjusted price - any idea where to get that figure for the latest prices?] and Oil also looking to break-out, it looks increasingly likely that it is going to be interest rates, inflation, and growth running around in spirals trying to catch each other...with Currency dynamics popping surprise hurdles in the game.

If crude goes up, inflation mostly will...and so will related commodities like Sugar (used in ethanol - which is used in Bio-diesel - a substitute for crude oil for energy requirements), Palm Oil (with bio-diesel demand going up, Palm oil - an input in Bio-diesel also goes up), and so does Soy Oil (an alternative to palm oil in cooking), and Groundnut oil (an alternative to palm and soy oil) and others. The cost of transporting and cooking food goes up...stoking inflation further. And then people rush to Gold, traditionally considered a hedge against inflation. A depreciating dollar would help but only to a certain extent...beyond that, its upto the central banks to manage inflation.

However, consider this - while the selling price of most commodities goes through the roof, the cost of producing these commodities does not...resulting in increased margins for most commodity producing companies...(plantation, mining, drilling, etc.). So if I were to stick out my neck, I'd say go long on global commodity producers' stocks. And unlike Mobius, still avoid Airlines stocks - as for them Crude Oil is an input cost, and market share is as big a worry as margins. So increased volumes (due to increased economic activity) might just get offset against depleting margins....net result - stunted growth. Unless, of course, the airlines are hedging their input costs (intelligently)...so lets look-out for some smart financial managers in airline companies.

We're going through a rough patch, but its nothing to be worried about,...please return to your seats and put your seat belts on and enjoy the journey...!