One of the most reliable signs of a generalized bubble is the excessive valuation not in one asset class, but in several asset classes that occur at different times, because capital is like water, it flows towards the least resistance, which means that it enters the sectors that have a better valuation ratio, so that when the level becomes less interesting in a niche market, investors look for other places to return capital with less risk and the prospect of greater profitability. It is basically what happens in a stack of glasses when the glass on top is full, but we continue to pour water, it overflows into the lower glasses and so on.
In a reality, liquidity continues to increase with each passing day, whether through the injection of capital by main central banks or through fiscal stimulus, the scenario could not fail to be very different to what currently exists, an excessive appreciation in several markets, which started in the shareholder sector, but which in recent months has spread to niches with less volume, such as digital currencies and raw materials, not to mention the war between David and Goliath in the realm of short selling, which was propitiated partly because of the checks that many US citizens received from the government and used to invest in the market, with a new influx of buying pressure on Wall Street expected when the $ 1,400 entered in Joe Biden’s proposal is sent.
But in the case of raw materials, the risk of exacerbating prices is clearly higher, since this implies an increase in the cost of living that will certainly harm citizens with less possessions, wherever they are. As a point of comparison, the Dow Jones Commodity Index, which consists of a basket of 28 raw materials from three sectors, is now close to 10-year highs, with an appreciation of 8.76% only in 2021 and with a gain in the last year of almost 35%, with Maize for example, a staple food, having risen by almost 90% since the beginning of August 2020, while the price of Wheat has risen by about 40% in the same period of time, valuations that to continue with essential raw materials will threaten the already fragile stability of the food chains, with particular emphasis on the poorest countries, not to mention the contribution they will have to the increase in inflation, in general.
