Once again we are back to the counterintuitive scenario in which commodities ( in general) are rising on the heels of a super dovish Yellen while at the same time, the yield curve is flattening even further signaling increasingly slower economic growth.

Let’s see if we can get this – the slower the economic growth, the better for the future price prospects of commodities?

See what I mean about the enormous mess being created by these meddling Central Bankers. The problem for much of the commodity world has been a case of OVERSUPPLY brought about by previous years of excessively high prices tied to previous QE programs which dramatically weakened the US Dollar bringing on the “inflation trade” that sent the price of oil, copper, grains, etc. to unheard of levels. That caused a ramp up in production as producers moved to crank out as much of their product as possible to try to capture the profits from such inordinately high prices levels.

Sadly, the increase in output took place at precisely the wrong point in the economic cycle because the attempts to use QE not only here in the US, but elsewhere largely failed to produce any solid economic growth trends anywhere it was attempted.

As prices of these commodities then plummeted in an attempt to correct the massive imbalance existing between increased supply at a time of falling demand, along comes the Fed with its “talk the Dollar down” dovish attitude which is resulting in the usual knee-jerk buying spree by the macro funds which automatically buy commodities whenever the Dollar moves lower.

We are thus faced with the unusual and unsustainable predicament in which the rise in commodity prices is becoming self-defeating as it will work to forestall production cutbacks that might otherwise have occurred without the interference in the natural clearing process by the Central Banks.

As I have been noting ( more and more often it would seem) the flattening yield curve and the rise in general commodity prices is a conflict in which BOTH CANNOT BE TRUE simultaneously, if the laws of economics still apply anywhere in this Central Bank-created fantasy land which formerly was referred to as free markets.

As traders, we have to go with the flow but as a long time student of the markets, I do not have to like or approve of what these pestilential demi-gods are doing to our system of capitalism. They are obliterating every casual connection that once existed between the various asset classes right in front of our very eyes.