Since the start of this blog, we have attempted to draw attention to increased Financialisation of various markets and its impact on the way we live and work. The 2008 crisis was an important game changer in this process of financialisation. The subsequent measures to stablise the world economy only helped this process. Invariably, an important segment which witnessed volatility due to this financialisation were the Commodity markets. A very interesting recent news item carried by Bloomberg News website carried seems to have largely gone largely unnoticed.

A reading and re-reading of the news item leads me to conclude that right or wrong, the views in the article will have two major consequences, dependening on whether the views are right or wrong.

First, if the article is wrong, then it indicates that we are close to a major top for most of the asset markets. If the past is any guide, a cursory glance at the CBOE Volatility Index (VIX) or for that matter the Volatility Index in any market/country indicates that market volatility is at the lowest level and complacency is at its highest levels. Interestingly, it is at levels close to those in early 2007. The lowest reading for the CBOE VIX in 2007 was 9.70. Currently (closing on 3rd July 2014), it reads at 10.32. Of course, it could go much lower but, that is not the point here. The point is that each time there is high complacency we have some of these fancy theories - the last time we had a roaring bull run there were people who declared that the business cycle was dead. Hence, such thinking that the commodity prices are now less correlated to currencies or are not likely to be correlated to currencies may just turn out to be typical of exuberance before the bursting of a bubble.

Second, a more important consequence of the views expressed in the article are likely to mean a major change that may lead to lesser financialisation of the commodity markets going forward. This is important because it may mean a change in trend after nearly two decades - if it happens. Personally, I do not think the process of financialisation will end any time soon. On the contrary, the process is likely to gather steam. However, if correlations between commodities and currencies are likely to end, we are likely to witness lower volatility and with it probably more predictable commodity prices. That would have a significant impact on the lives of consumers.