Tuesday, January 11, 2011

Commodity prices remain strong


No sign yet of any commodity price weakness. This measure of non-energy, basic industrial commodity prices is now at another all-time high, having almost tripled since late 2001. Prices likely are being driven higher by strong global demand for commodities, and by accommodative monetary policy. I don't think anyone knows how to sort out exactly how much of the price action comes from either of these sources, but no one can rule them out.

Blogging will be light today as I am being called to jury duty.

10 comments:

Dr William J McKibbin said...

Commodity prices are very strong, and will likely remain strong through the coming decade, which is again, a sign that inflation is on the way...

Benjamin said...

Doc McKibben and Scott-

Well, I hope some inflation is on the way. Tell me when properties start inflating again. Waiting, Still waiting. Been waiting. How much longer do I have to wait? Years, or decades?

BTW. commdoities are interesting. The CRB Futures Index Index (ICEFI) Chart uses 1967 as a base, at 100. It now stands at 331.09.

Tha would indicate commodities tend to get cheaper over the long run. After 44 years, commodities prices have only tripled.

Other commodity indexes are rather tame also, even for recent years.

If you want to know what to expect in inflation, look at TIPS or unit labor costs. Not much action there.

Public Library said...

Not sure why this chart does not give you pause. It tells me we know exactly where the next bubble inflated post the global money printing mania.

This will eventually come home to roost and most likely end badly.

Benjamin said...

PL-

There are other commodity index charts that are quite tame.

Also, property is flat, and stocks are tame too. I see no asset bubbles.

That said, I would welcome some inflation, especially property inflation.

Right now, when someone rings klaxons about inflation, it sounds to me like the "threat" of too much water for a man dying of thirst.

Public Library said...

Benji,

Your entire barometer is real estate. It just went through a meteoric rise and bust. See Japan for your answer to investments there.

Just because Japan was in a real estate and equity bust, did not stop the the Mexico, Asian, Russia, and LTCM bubbles followed by the 2000 bug/bust.

Bubbles are inflating everywhere. You just need to take off the real estate goggles. This is what happens when money gets printed and it NEVER ends well.

Bill said...

Public,

I think there is a pretty good argument that if the Fed had not increased the money supply in '08 we would have had a deflation depression like the one we had in the '30s when the Fed did nothing (which I believe is what MF thought was the cause of the Great Depression). Perhaps you think the latest "bubbles" will burst which will lead to a depression regardless, but I think we already tried the alternative and found it to be a bad idea. The inflation of the '70s was bad, but not as all as bad as the Great Depression.

Public Library said...

Bill,

I believe deflation is the result of the excesses in money printing and fractional reserve banking.

On a metallic standard, deflation is finite. You can only hoard as much money as there is in supply but in reality it ends much sooner because you need to spend money on the basics to survive.

However, with fractional reserve banking, people can hoard as much as the bank will print until the money they print becomes worthless and the reverse occurs.

A long series of roller coaster rides always ending in human error and folly.

I would trade a 2 year depression for a decade or two of economic slogging any day. History is littered with central banking rubbish and hullabaloo.

honestcreditguy said...

Public library,

the 2 years would have been in the past today...zombie banks and companies, greed, corporation tentacles flowing thru the govt. branchs like an octobus of curroption leaves citizens little income gains to grow their wealth while taking more of it thru taxation...

Inflation is not a friend of the poor and middle class...especially by design...

Public Library said...

honestcredit,

Exactly. Somehow the central banks and governments convinced people like Benji that inflation is good and deflation is evil.

So long as Benji can pick up a few coins on his housing stock, he is willing to pay more for everything while the government takes his money and others without nary a peep.

There is no doubt in my mind the Bernanke experiment, like the Greenspan experiment before him, will end in tears and confusion.

Benjamin said...

public Library-

yeah, I want inflation, or appreciation in real estate.

Check out Japan. There are facing another decade of deflation, if bond buyers are correct.

In the last 20 years, the USA economy has grown by 150 percent, and we are growing again, We had mild inflation the whole time, the dollar wig-wagged around.

Japan grew by 15 percent in the last 20 years, and they have had no inflation, and bouts of deflation, including now. It appears they are in a perma-recession. The yen has been very strong.

Dude, in Japan tight money just hasn't worked. Tight money does not work. I know tight money has been preached to us, but history suggests otherwise (including in the Great Depression, according to Friedman).

The energy has shifted to Korea. It is obvious--cars, high-tech, culture. China too. Neither country practices tight money and they are roaring past Japan.

McKibben and Grannis have been making long faces about inflation for years. Hurry up already. Where is it? This year? Next year? Within five years? This decade?

We are waiting, and waiting. Waiting some more--what is that? Unit labor costs going down? How does that fit in with inflation?

I am waiting to have lunch with Jimmy Hoffa. I think that may happen before I see inflation.