And yet the two are closely linked just as some clusters of mergers are. In economics, everything is connected to everything else and prices are the means by which this is accomplished. This, unfortunately, is precisely what the Fed has been doing. What is also unfortunate is that the vast majority of economic and financial commentators are totally oblivious to this fact. Loose monetary policy has fuelled the stock market boom, encouraged corporate mergers while having a malign influence on commodity price margins.
Commodities tend to be inputs.
As I explained in previous articles, artificially lowering the rate of interest causes over-expansion in higher stages of production. Commodities are part and parcel of those stages, meaning that lower interest rates also raises the demand for commodities, even though their secular price trend is downward. Once the higher stages find themselves in a profits squeeze as rising costs and falling demand puts them in a financial vice, this will feed back into a reduced demand for tthese products which in turn reduces their price margins. This is why commodity price margins rather than commodity price trends should be followed more closely. And this is why the message is not good.