More on the Secular Bull Market in Commodities

The Reuters/Jeffries CRB Index - an index that was first constructed in 1957 and comprises 19 major commodities - has been rising non-stop for the past four weeks and for nine weeks out of the past 14. This surge represents a gain of 30.2% from its low on March 2. But one needs to put this in perspective: the Index fell by 57.7% from its high in early July 2008, and therefore still needs to rise by a further 81.5% to match the previous peak.

I posted an article a week ago entitled “Secular bull in commodities remains intact” and concluded as follows:

Commodities still seem to be in a supercycle that was only temporarily interrupted by the global economic malaise. As inflation money finds its way into commodities, it is still not too late to purchase these, but only on price corrections that are bound to occur from time to time.

David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, concurred, saying:

What we experienced last year was a severe cyclical correction in what is still a secular bull market - you can connect the dots on the chart and see that the CRB looks a lot like what the S&P 500 looked like in the months following the sharp 1987 collapse. It seemed like the end of the world in October of that year, and yet in retrospect it was just the fifth year in what proved to be an 18-year secular bull phase.

Bringing technical analysis to the equation, Adam Hewison of INO.com has prepared another of his popular analyses, specifically on the CRB Index. Click here or on the image below to access the short presentation.

Click to enlarge:

Comments

[BigJake:]

you gotta be kidding me on the graphic right?

Jun 11 03:27 PM

[denko:]

bwahaha !! Yeah!

Its state of the art technical analysis ...the red line goes up , and then it seems to go down, and then it splashes - a bit.

So buy commodities into the super-duper bicycle ?

Ya think...

On Jun 11 03:27 PM BigJake wrote:

> you gotta be kidding me on the graphic right?

Jun 11 09:20 PM

[onebir:]

"I posted an article a week ago entitled “Secular bull in commodities remains intact” and concluded as follows: Commodities still seem to be in a supercycle that was only temporarily interrupted by the global economic malaise"
You did, but since then (from memory):
a) China's May exports remained very weak (about -26% oya)
b) Chinese officials admitted H2 would be very difficult for exporters
c) Chinese electricity consumption's remained in negative territory OYA
d) the Baltic Dry index, which has apparently been boosted by Chinese stockbuilding & demand for Capesize vessels, has fallen back significantly. Forward shipping rates remain considerably below current levels.

There's a lot of cash out there waiting for investment opportunities and nervous about inflation. My guess is it's jumped onto
a) a China-induced uptick in commodities superimposed on
b) a recovery in commodities from oversold lows reached when it looked like financial armageddon was round the corner

But - unless perhaps sufficient momentum in commodity builds up - I doubt there's anything secular about it - yet.

"therefore still needs to rise by a further 81.5% to match the previous peak." What makes its previous peak a relevant reference point in the current (rather different) environment?

Jun 12 08:53 AM

[Henry Buttal:]

Ignoring the super cycle for a moment, it is at least plausible the CR goes from 260 to 300.

Certainly agricultural products have the potential to rise.

Jun 12 10:26 AM

[millipede:]

One has to wonder what secular supercycles people are seeing. Harry Dent has been excellent about long cycles in their broad characterization and approximate timing (based on inexorable demographics and typical generational behavior), less good on shorter range forecasts of how much and when. Recent cycle peaks -- which he accurately described qualitatively years in advance -- have been coming about 6 -12 months earlier than his historical overlays. Oddly, versus the forecasters cited above, he has long forecasted the END of a secular bull cycle in commodities in late 2009 or so. After the early surprise bust in 2008, Dent has anticipated only an echo peak this year -- and only enough, along with spikes in bond yields, to hit the brakes on economic activity, and tip it back into a long phase of de-leveraging and deflation.

In the longer run, the flood of new dollars can be expected to be largely absorbed by forced debt-paydown and thrift, less so sent chasing and producing stuff. It's a scenario to keep in mind, one that appears to be haunting the gold markets from time to time.

So far, Dent's short-term/long-term scenario seems more accurately to characterize the commodities (and bond rate) moves in here -- a bear market rally, not a secular bull. In the short run, there's probably still room to move up, but the faster they rise, the sooner they'll chill. The global economic situation is still too fragile.

Jun 12 03:14 PM

[CLH:]

The 30% rise in commodities is the same as in the equities and is probably caused by the rebound caused by the panic selling last Fall.
Commodities always go down during debt eliminations and I see little upside at this time. Certainly not a secular bull.

Sorry your presentation didnt work.

Jun 13 08:35 AM