Yesterday PPI came in lower than expected giving an excuse to the deflationists to sell down anything commodity related and plunge blindly into US Treasuries!
We found this behaviour somewhat amusing given the recent behaviour of the CRB (as in the old CRB – now referred to as the CCI).
And also given the behaviour of our proprietary commodity index, which consists of just 5 commodities – wool, rubber, polyethylene, coal, and pulp. We devised this index with the intention of following commodities that were vitally important to industry but were not so easy to trade which cuts out volatility associated to speculative activity as is the case with the components of the CRB.
To us the trend in commodities is clear. The rally is broad based with even obscure commodities rallying to multi-week highs. This suggests to us that producer prices will, in all probability, lead to spikes to the upside over the coming months. Producer prices just cannot remain low when the basic inputs are moving higher week on week! Furthermore, we find it difficult to comprehend how deflationist arguments can be taken seriously given the behaviour of the two charts above. If rising commodity prices are deflationary in nature perhaps I missed something in introductory economics! As a matter of side has anyone taken note of what has been happening on the Baltic Freight Rate front AND the relative outperformance of shipping stocks? We certainly have!
Disclosure: Long DBC, SLV, TBT.