About Me

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 !!!

Friday, February 14, 2014

Commodities Market

Since the latter part of 2013, I have been suggesting that with a firming of global economic
growth in prospect, the commodities market might well perform better on an acceleration
of product demand. There is significant excess production capacity in the commodities
sector following a large capital investment cycle to expand output capacity in these markets
over the 2000 - 2011 period to serve the growing needs of China and other emerging
economies. However, cyclical global growth acceleration unless miniscule can lead to
rallies in the commodities markets even when excess capacity exists especially if price
deflation in these markets reflects a run off in consumer / user inventory stocks.

I have included a CRB Commodities Composite chart link in this post, but it does come with
a caveat. Price surges in the CRB in the early part of a calendar year are not uncommon
especially if winter weather has been harsh and buyers scramble to build stocks as suppliers
struggle to deliver them. This winter is a good case in point and you need to be wary of
extrapolating a significant seasonal pop into a new powerful uptrend. CRB Weekly Chart

The CRB is breaking out of a downtrend that re-commenced in 2011 and actually dates
back to 2008. My commodities macro model for the CRB advances the composite about 3%
a year and now has fair value set at 335. So, this market is seen as "undervalued" and this
has been so since the second half of 2011 as the group has been subject to continuing
capacity overhang. However, there is now a positive reversal of trend, so attention
needs be paid.

Here is the prior post on the commodities market dated Nov. 6.

No comments: