The Fed’s Effect On Commodity Prices Has Vanished

The Fed’s Effect On Commodity Prices Has Vanished

Sam Ro | Mar. 18, 2013, 10:04 PM | 3,682 | 5


Some market skeptics have attributed the stock market’s gains to the stimulative forces of the Federal Reserve’s ultra-easy monetary policy.

Many of those same people have blamed the Fed for rising commodity prices too.

However, this latter argument seems to be losing its strength.

Cullen Roche of the Pragmatic Capitalism blog points us to this interesting chart from Societe Generale’s global research team led by Patrick Legland.

Here’s SocGen’s commentary:

The effect of QE on commodities (if any) vanished earlier than for equity markets. During each of the first two quantitative easing phases carried out by the Fed, commodities appreciated by over 25%. However, following the announcement of QE3 in Sept. 2012, commodity prices declined (-7% for the CRB index), a reminder that they remain largely driven by economic cycles rather than central bank actions (Gold being the notable exception). In fact, equity markets now seem to be the only asset which benefits from abundant central bank liquidity.

Conclusion: The all-time high reached by US equity markets last week can be attributed to the fact that the only major asset class which benefits from the current “risk-on” mood of investors is equities in developed market.

“Could it simply be that there are other real fundamental drivers of stock prices at present (like corporate profits being driven in part by huge government deficits?) and that the QE “wealth effect” is all in our heads?” asks Roche.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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