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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, May 10, 2011

CRB Commodity Price Composite

Commodities remain in a cyclical bull market which started in late Feb. 2009. Trader discipline
in the pits has been remarkably good until early this year when it began to break down and guys
started to chase them up. As often happens in this volatile market, last week saw a very sharp
sell-off on concerns about development of a slowdown of global economic growth based on the
various purchasing manager surveys. I do not think the sell down was sharp enough to count as
a warning of bad tidings ahead for commodities. I do think the market may prove tentative for a
good several weeks in keeping with the usual action after a sharp run up is partly crushed.

The trend band for May for the CRB is 360 - 285, so at 348, the composite is at the high end of its
predominant trading range. Moreover, given the volatility of the CRB, one cannot readily discount
a visit this year down to the bottom of the band, say in a range of 285 - 300. I would also note that
the CRB does tend to get more volatile above the 280 level, with this being true for a number of
years. Last week's quick sell off did wipe out most of a good sized overbought condition.

The CRB did enjoy a strong run from mid 2010 until just recently, and I wonder what positive
catalysts may be required going forward to sustain a sharp advance now that QE 2 is set to
wind up on Jun. 30.

My long term work suggests the CRB remains reasonably priced. There are a number of players
out there who believe that commodities are in a long term bull market. The historic performance
of the CRB going back over 40 years does not support this view. Long term bulls had their
thesis blow up on them in 2008, and if you are interested in the long term bull case, you will
need to spend goodly time on studying the supply side rather than just relying on increased
headcounts of consumers in emerging economies.


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