Commodities in Bear Market Mode

For a very long time, commodities were in a protracted bear market. Each time prices went up, they hit the top of a wide channel and were pushed down… until 2004 when the CRB broke above the channel and went on a wild ride.

More and more the bull market appeared unsustainable as prices accelerated. Comparing the bear market channel with the bull market that ensued, it is easy to see the contrast. While the bear meandered lazily with the rhythm of an endurance runner, the bull market shot ahead with a one track mind.

But now, with the price of crude oil deflating fast, the CRB Commodities Index finds itself again in a clear bear market:

To be precise, the CRB Index is now down 24% from the top in July 2008. If this was an equity market, it would have qualified the standard +20% definition of a bear market.

If this is truly a change in the long term trend, it would not only mean a shot in the arm for equities but also the world economy.

Comments

[20smoney:]

my thoughts here...

20smoney.com/2008/09/1.../

2008 Sep 11 11:53 AM

[bowman711:]

As everyone knows, the Chinese (and others in a similar position) hold hundreds of billions of the U.S. debt. They also see what is happening in the 'credit crisis' and that the U.S. is facing it by printing untold more dollars, thus devaluing every dollar-denominated entity already held in by the Chinese. Not wanting to see further erosion of their wealth, they have let the Fed and the Bush government know that they want out of dollars.

A sudden dumping of hundreds of billions of dollar debt would likely cause the end of the 'full faith & credit' in the U.S. dollar. [The Euro would likely take its place as the world currency.] So, to save the dollar, the Government might have made an agreement with the Chinese to suppress commodities so the Chinese could exchange their dollar for commodities. The 2008 G8 Foreign Ministers Meeting was in late June, and it seems that the real attacks on commodities started a couple of weeks later. Coincidence? Maybe not.

2008 Sep 12 09:24 AM