A Commodity SUPER-SPIKE Is Coming. Are You Ready for It?

From Greg M

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A Commodity SUPER-SPIKE Is Coming. Are You Ready for It?

By Gregory Mannarino TradersChoice.net

While it is certainly no secret that today the cost of living is continuing to increase at an alarming pace, what lies just around the corner is much more menacing- and there is no way to stop it.

FIRST! Understanding market environments.

Cash moves through the global markets in more or less predictable patterns, to better understand this phenomenon, follow along with me for a moment.

There are only two “kinds” of market environments, the first one is called “risk-on,” and the second is called “risk-off.”

In a risk-on environment cash flows into risk assets like stocks, and if history is any guide, also real estate. A risk on environment is created when central banks artificially suppress rates. By a central bank keeping bond yields artificially low it opens a window which causes assets like stocks and real estate to inflate dramatically in price, (It also causes cash to move out of commodities).

When any central bank either by itself, or collectively with other central banks buy debt, they also inflate the global money supply- and the effect is always the same, a loss of purchasing power for their respective currencies, and gigantic price action distortions.

In any so called “free market” there has to be a real price discovery mechanism in place. That is, it must be the market itself by which the normal buying and selling of assets on the open market dictate price. But when you have central banks manipulating the price of debt by buying it en masse, any real price discovery mechanism is effectively removed. When a real price discovery mechanism is removed, you get price action distortions which are also known as “bubbles.”

Asset bubbles are generally thought of as an exaggerated INCREASE in an assets price- like a housing or stock market bubble however, you can also have INVERSE bubbles. An inverse bubble exists when an assets price is exaggerated to the downside. An inverse bubble is created when price action distortions become extreme to the downside, as would be seen in an environment where central banks are buying massive amounts of debt in order to keep rates suppressed. Interest rate suppression creates risk-on environments while also creating inverse bubbles.

The second kind of market environment is called “risk-off.”

In a risk-off environment cash rapidly bleeds out of assets like stocks and real estate and eventually makes its way into commodities.

A risk-off market is preceded by a rapid sell-off in global debt markets which causes bond yields to spike in an uncontrolled manner, and this in turn puts enormous pressure on risk-on assets.

In a full-on rapid risk-off situation, cash swiftly flows out of debt and stocks simultaneously- and simply moves into assets which have become grossly undervalued during the risk-on cycle, and that would be commodities.

Today commodities in general are in massive INVERSE bubbles therefore, when risk-on eventually becomes risk-off, and it will, the price of commodities will SUPER-SPIKE.