The Power Of A Basis Point

As the entire global financial system awaits the movement towards rate normalization by the Federal Reserve, it is interesting to watch markets rationalize their clearly herd-like behavior. Time after time, we have heard the commentary ” non-yielding assets like commodities will be the most to suffer in a rising rate environment”. As we all know, perception often is reality and nothing creates a greater perception than a mob scene.  The month of November witnessed the single greatest  monthly downturn, as measured by breadth on the GSCI,  since the 1970s. What that should be telling us is that the current “no brainer” trade of the day is to buy the dollar and short commodities. As with all other “no brainer” trades, momentum does a good job of masking what is really going on underneath the surface. What is really going on is a movement towards capacity discipline (sometimes forced) and ultimately price recovery.