Monday, February 18, 2008

Stocks Cpmpletely Ignoring High Commodity Prices

For the past few days, commodities like copper, zinc, lead, alumunium, crude oil, gold, silver, steel, coking coke, iron ore have witnessed very strong prices. All this doesn't pose well for already inflationary scenario, especialy after capital markets have undergone severe correction. Stocks are recovering some of the lost ground but have not factoring the impact of very high food, energy and industrial commodity prices on overall economic growth and hence on corporate profatibility. These commodities will continue to remain firm as global growth is still strong at 4.1%, wiht china leading the charge at over 10% plus GDP growth and eating lions share of these commodities with demand from that country not slowing anytime soon. Expected cartilisation from steel companies has lead to firming up of steel prices glbally, iron ore producers to have increased price of this commodity by 65%. This price rise will be passed on to consumers and thus high inflation in the hands of end user! Goverments say prices are determined by market forces but we all know how cartelisation works and thrust inflation on us. As soon as stocks realise how high inflation has been affecting central banks monetary policy and companies performance, they will behave negatively, sooner they did so, better will be for the markets otherwise at irrationally high valuations what can happen we all have seen last month.