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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 !!!

Thursday, September 29, 2011

Commodities Market

The CRB commodities composite has been in an elegant downtrend since the end of Apr. 2011.
As most all know, evidence has been gathering since earlier in the year that the global economic
expansion was losing positive momentum. This has been the case although global production
was likely at or near an all time peak through Aug.

The commodities composites are not always captive to the same indicators for touchstones. Now,
commodities have been subject to the downtrends in place for the leading indicators and new
diffusion indices for the purchasing managers activity composites. It is momentum that has players

There is growing sentiment that the weakness in commodities has been strong enough -- the CRB
is nearly 18% off its cyclical peak -- that recession periods must be at hand for major economies.
Could be, but remember that financial players are heavy into into these markets now through
various ETF and ETN vehicles and this adds volatility to the already volatile commodities

The significant fall in the commodities composites is leading to a fairly rapid decline in my
primary inflation pressure gauge, a development needed to reduce stress on real wages in
any number of economies. This development will allow central banks more leeway in
considering policy accomodation steps.

Clearly though, this is a risky way to engage monetary policy as commodities price weakness
does suggest growing economic slack in the global basics delivery system and monetary
policymakers will have to act in a supremely timely fashion if, for example, the CRB does
continue to glide lower. But such "soft landing" feats have have been accomplished before
(viz. 1995 and 1999).

The CRB is trading right above cyclical trend support at 300 and super long term trend support
at about 280, so further sharp downside action would be an ominous sign. At 306, the index
is substantially oversold and failure to have a bounce up of consequence soon would also be
a serious matter.

CRB chart.

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