Investors Footloose As Price Spikes Affect Major Markets

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Today's global investor's are footloose and fancy free. After Global banks were able to wrest the biggest concessions from the US and European Governments following the housing mortgage crisis, they have roared into profits on the taxpayer's money. The US economy could be poorer today , its debt could have gone through the roof  ( see chart ) and its revenue generation could be slower than before, but the Obama administration and the Federal Reserve has ensured that the Wall Street Banks are stronger, bigger and more liquid then ever before. The Wall Street Banks are no longer bothered about the toxic assets,though they remain very much on their balance sheets. Instead they have got busy with profiteering facilitated by volatile markets which the TARP liquidity and technology changes have allowed.
The 2010 year end price peaks are quite alarming,be it in oil, food grains, cotton, gold, copper or other commodities and metals. This is not due to demand supply gap but due to  Quantitative Easing as per said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin quoted by Reuters.




 Oil touched a 2 year peak at $91.51 during the week before Christmas as cold weather conditions prevailed in Europe and North America . Gold has gone up the most during the year 2010 and so has silver, copper, palladium and most raw materials. Agricultural commodity prices and livestock prices have spiraled too, be it wheat, corn, soybean,  groundnut oil, sugarcane, or potatoes,onions, tomatoes or meat and fish. Surely this is not due to increased demand across all commodities as the Governments in most countries would want us to believe?

As a matter of fact the peaking of prices and the added volatility in the markets have not been due to rising demand , but due to rising liquidity. In the integrated markets concept the investor invests large amounts of money with the Global banks and lets them play the markets. The large Wall Street Banks then play in the markets shifting huge amounts of funds electronically across commodities taking advantage of demand or market volatility in areas they deem as maximum profitable.

If news of onion price hikes across India makes them feel they can profit short term from onions,then they will
pump in money into that commodity and corner all available stocks. Tomorrow if Gold prices give better returns the money will shift quickly to gold to get short term profits from Gold. This is one major reason,why additional liquidity is dangerous in the hands of the global banks and is the cause of price spirals across the world. Large amounts of hot money are also being invested through these routes, which is creating more problems. To stop this trend,to stop major price escalation and food riots in emerging nations Governments must create an audit trail of investors money, even levy a financial transaction tax without which major structural problems may surface in 2011