Monday, October 18, 2010

The next asset price bubble?

Are commodities experiencing a bubble? As we move into monetary policy and the determinants of inflation this article is of particular interest. As the Federal Reserve injected trillions of dollars into the financial system (to keep interest rates low) a number of investors are betting inflation is just around the corner. As of today banks are flush with cash, but are not issuing loans. This behavior is likely keeping inflation low, but the concerns over high future inflation are increasing. There are two ways to hedge inflation risk, buy treasury protected securities or invest in commodities (gold).

We know bubbles are contagious, after one bubble ends another bubble forms. It's usually just a matter of time before another bubble is spurned.

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