The Liquidity Flood Continues

Monday, August 2, 2010, 2:42 PM
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Even as the Fed is busy trotting out various spokespersons to proclaim their fear of deflation, all the signs out there in the economic world are consistent with ample liquidity.  Trying to read these market signs for clues as to where we are headed next is about as difficult as it's ever been.  Let's take a clear-eyed look at the evidence to see what it's telling us.

When stocks, bonds, and commodities are all rallying, we can safely assume that there's plenty of liquidity out there, chasing assets and causing prices to rise.

As poster Machinehead noted in a comment this morning, the Continuous Commodity Index (CCI) is just about to break out past its recent peak at the beginning of the year (2010), which would put it at a new multi-year high.

As interesting as that is (we'll get to the drivers of that in a minute), I find that the long-term view of the CCI provides us with a compelling view that perhaps deflation does not quite have the grip on us that some proclaim:


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