Why are the prices of so many commodities rising in an economy that seems to remain quite weak?

% change butter35 coffee21.8 cocoa20.2 copper89.1 corn-8.3 cotton38.6 gold32.1 hogs2.7 oats13.4 oil63.2 lead81.9 palladium75.9 platinum61.7 silver59.1 steel-0.9 sugar73.6 tin22.5 wheat-26.6 zinc55.4 average37.4 euro12

The table at the right summarizes the percent change between January 6 and November 11 in the cash prices of 19 commodities reported in the Wall Street Journal (downloaded via Webstract). The average commodity in this list has appreciated 37% since the start of the year.

A recent paper by Ke Tang and Wei Xiong documents an increasing tendency for commodity prices to move together over the last few years. A decade ago, what happened to oil prices was largely unrelated to movements in most other commodity prices. The graphs below show how the correlations between oil prices and

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The graph below shows the historical relationship between the annual change in the oil price and the year-on-year change in the US Consumer Price Index. Should the oil price remain around current levels, the CPI is bound to rise markedly. It comes as no surprise that gold bullion and Treasury Inflation-Protected Securities, or TIPS, have been relatively solid performers over the past few months.

Source: Plexus Asset Management (based on data from I-Net Bridge)

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Pimco is ready to launch the first short-term TIPS ETF in the U.S.

 

Pimco is set to launch its second exchange-traded fund on Monday, again sticking with short-term Treasuries.

This time, however, the world’s biggest bond fund manager is moving into Treasury Inflation-Protected Securities. It’s a market with two entrenched competitors already vying for investment dollars. But TIPS have been hot attractions so far this year, and if inflation hawks are correct, could heat up even more in coming years.

New Competition

The Pimco 1-5 Year U.S. TIPS Index Fund (NYSE Arca: STPZ) will be the first to focus on the short-end of the yield curve. The two others already on the market take an intermediate tilt: the iShares Barclays TIPS Bond Fund (NYSEArca: TIP) and the SPDR Barclays Capital TIPS ETF (NYSEArca: IPE).

State Street Global Advisors also sponsors a global TIPS ETF, the SPDR DB International Government Inflation-Protected Bond ETF (NYSEArca: WIP). It

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It is high time for our political leaders to make some key decisions.  And that translates into large uncertainties for investors that have held the market in a range and with low volume. We do not know whether “Cap and Trade” legislation will pass the Senate and we do not know whether and any healthcare bill will pass through Congress, or what that bill might entail.  And these two issues are paramount for the future of America.  

As we discussed earlier, cap and trade could cause incremental costs in energy for all of the United States, particularly in all carbon-based generation of electricity.  Increasing these costs will make carbon-based energy less competitive with alternative sources, like solar and nuclear.  The benefits of this legislation will be less carbon emissions, cleaner air, less dependence on imported oil and the creation of new jobs in the alternative

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Enough is enough. I’ve had it with California muni bonds.

Despite the relative safety of holding the state’s debt in the form of index funds or ETFs, when a government starts paying for prison services and laundry bills in the form of IOUs …

Don’t get me wrong. It’s not time to panic and completely bail on the state’s bond issues. If you’ve held onto them up to this point, jumping out all the way might not be the best idea. After all, long-term returns of conservatively run, ultralow-cost mutual funds like the Vanguard California Intermediate-Term Tax-Exempt Fund (VCAIX) are stellar.

The story is similar with ETFs (I took a look at the muni bond ETF field last year in this column).

In California, one of the more popular options is the iShares S&P California Municipal Bond ETF (NYSEArca: CMF). So far this year,

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With investors trying to figure out the most likely direction of stock markets, the US dollar, government bonds, commodities and gold attracted a fair bit of attention - also from the producers of this week’s video footage.

Commentators in the selection below include Josh Rosner, Byron Wein, Stephen Jennings, Paul McCulley, Ed Yardini, Doug Kass and David Rosenberg.

The compilation kicks off with Congressman Alan Grayson uttering some harsh words at The Big Picture Conference - Capitalism After Crisis & Recession, and concludes with a fun ditty - a Wild Life Boogie, AKA The Economy Song.

Yahoo Finance, Tech Ticker: Cost of Fed expansion of balance sheet is $30K per American

“Those were just some of the harsh words Congressman Alan Grayson of Florida had this morning regarding Washington’s handling of the financial crisis so far. His remarks were part of The Big Picture Conference - Capitalism After Crisis &

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With inflation worries starting to surface and the US Dollar resuming its fall, many investment advisors have advocated the iShares Barclays TIPS Bond Fund (TIP). This ETF invests in Treasury Inflation Protected Securities, treasury bonds which promise to completely protect against inflation by calculating the coupon payment on inflation-adjusted principal.

The TIP is a smartly designed fund with an attractive expense ratio and plenty of liquidity. But it has one fatal flaw: TIPs haven’t been tested in truly inflationary times, and are thus a much riskier investment than most people think.

The protective value of TIPs rests on an accurate calculation of inflation. Critics have long accused the CPI of underestimating the true value of inflation. Much like the unemployment figures, the CPI numbers have been openly massaged over time to look more benign. They aren’t falsified per se, the index’s parameters

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BofA Fast Tracks TARP Payback; Brazil Unemployment Reverses in April; Taiwan GDP Falls 10.24%; Emirates Airline Posts 80% Profit Nosedive; Dollar Swoons Against Euro, Yen; GM and UAW Reach Tentative Accord; Leading Indicators Surge to 4-Year High; Copper Slumps on Poor Sentiment

Bank of America Corp. (NYSE: BAC) intends to pay back $45 billion in loans it borrowed from the U.S. government through the Trouble Assets Relief Program (TARP) by the end of the year, The Financial Times reported. And it intends to do so by accelerating its program to raise capital. Sources told the FT that BofA is on track to raise more than $35 ...

“Words from the Wise” this week comes to you in a shortened format as my traveling in the US precludes me from doing my customary commentary. However, a full dose of excerpts from interesting news items and quotes from market commentators is provided.

On Friday, Federal Reserve regulators have released a white paper outlining the criteria they used to assess the financial health of the nation’s 19 biggest banks. On the same day they also briefed the banks about how their companies had fared in the examination. The banks will have until Tuesday to dispute any of the results before they are made public on May 4.

According to the Financial Times, senior Fed officials said US authorities will ask some of the country’s biggest banks to raise more capital following the completion of bank stress tests. The officials also indicated

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It is the crux of our economy. It is the all-important foundation upon which economics is built. It is supply and demand and the constant attempt to reach an equilibrium that our policymakers are now dealing with in their attempt to revive our economy. To fund the astronomical size of the stimulus packages the White House has authorized, as well as to finance the budget deficit, the government has had to issue record amounts of debt.

As the government sells its debt and increases the supply of bonds in the marketplace, it must lower the price to find sufficient buyers, driving interest rates on the debt up. On Friday, the yield on 10-year Treasury notes rose 13 basis points to 2.89%, as the price dropped $11.25 per $1000 face amount to 98¾.

The fear that the Federal Reserve has flooded the market with debt and thrown the supply-demand relationship out of

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