Friday, October 16, 2009

More "V" signs (2)

This is a 5-year chart of Bloomberg's constant maturity commodity index, which is composed of 26 different commodities in five major groups: energy, agriculture, industrial metals, precious metals, and livestock. As the chart shows, commodity prices have recovered about half of what they lost last year, and are still rising. I believe this demonstrates two important developments: 1) global demand has rebounded significantly from its end-2008 lows, and continues to firm; and 2) central banks around the world are pursuing accommodative monetary policies, which are facilitating the recovery since they have satisfied the fear-induced demand for liquidity. This may well end in another inflationary bubble, but the more important thing to focus on now is that the commodity price surge is a good coincident indicator of the rebound of global growth and as such is extremely positive.

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