Tuesday, August 17, 2010

Commodity prices hit new post-recession high

This chart of the CRB Spot Commodity Index (which consists of non-energy, basic industrial commodities, many of which have no related futures contracts) shows some pretty impressive strength, having risen 50% from its recession lows in late Dec. '08. Until the recent rise in the index which began in mid-July, the correlation between this index and the S&P 500 was about 0.85. The correlation has dropped since then because commodities have risen but equities have been flat. It may be that equities are simply slow to recognize the reality of ongoing global growth and the continued absence of fundamental deflationary forces that are reflected in strong commodity prices. I take encouragement from this, because at the very least commodity prices tell me that the market may be wrong to fear a double-dip recession and deflation.


septizoniom said...

you are beyond redemption. you are completely blinkered. i hope it is a sthick.

George Kessarios said...

I don’t see o correlation between commodity prices and deflation.

While the relation may have been strong in the past, I think this time around the issue of deflation has more to do with credit than anything else.

Public Library said...

Commodity prices reflect the demand for non-paper assets. Paper assets are overabundant in the global community many times over.

All the worlds wealthy are trying to figure out how to escape the coming paper money debacle.

Rome collapsed from clipping coins. The same is achieved by printing more paper. Eventually human behavior adjusts to the reality unfolding.

acrossthecurve said...

This rise in commodities is being driven by bad weather and the weak dollar. Wheat is up 50% since June because of the Russian drought. Gold continues to rise because of money printing. Oil and Copper have topped and that is a sign of possible deflation.

If Scott is right about the dollar, I think he might be, then commodities are topping and the 10 yr bull market will come to an end.

Scott Grannis said...

Re the dollar and commodities. I should note that my forecast for a rising dollar is a very long-term call. It could take awhile to develop. Meanwhile, the link between commodities and the dollar is not strong or reliable.

acrossthecurve said...

I do not doubt that a top in commodities or a bottom for the dollar will take years to develop.

The correlation between commodities and the dollar has completely deteriorated since mid 2009. I think when markets stabilize in the next year or so the correlation between the dollar and commodities will return. It seems like many of the positive or negative correlations between markets,(ie: Bonds vs Stocks) pre-2008 have been throw aside either because of High-frequency trading or the shear mayhem of the markets over the past 2 years.