Tuesday, July 21, 2009
Government-generated statistics are subject to delays, errors in data collection, faulty seasonal adjustment, bad guesstimates, and sometimes major revisions well after the fact. You can't be misled by spot commodity prices, however. They are available in real-time, and they reflect the purchasing, selling, and speculative decisions of billions of people around the globe.
As this chart shows, spot prices for industrial metals are up over 50% from their lows of last December. Many people will argue that all this is just a reflection of massive stockpiling on the part of the Chinese, financed artificially with the trillions of reserves they have also stockpiled. Or at the very least it represents force-fed stimulus plans that will only result in over-building and eventual collapse.
Regardless of whether Chinese demand is artificial or not, it means real work for all the companies and countries that produce industrial raw materials. And the Chinese aren't just going to be sitting on a mountain of industrial scrap. The Chinese economy has a furious demand for all sorts of things, with a growing population eager to work and catch up to the living standards of the world's industrialized economies. The government has plenty of resources with which to feed this growth machine, in the form of trillions of reserve assets and a sterling credit rating. It's almost inconceivable to me that China could consume so much and grow so much (7-8% growth projected for this year) without this growth spilling over into the rest of the world. What's good for China is good for everyone, as they used to say about GM.
So I view the sustained rise in most commodity prices as an excellent sign that the global economy is picking up. I think it also reflects to some degree the fact that monetary policy as practiced by the world's major central banks is almost uniformly accommodative. To the extent the latter is true, the rise in commodity prices is foreshadowing rising inflation in the years to come. That's a bit disturbing, but in the meantime, rising commodity prices can only be classified as one of those "undeniable green shoots."
Posted by Scott Grannis at 3:30 PM