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 !!!

Monday, September 07, 2015

Do Not Forget Commodities....

The commodities market remains cheap. Since 1970, the CRB Commodities Composite has spent
precious little time below 200, where it sits now. Granted, that which is cheap can remain so or get
even cheaper. However, since the direction and momentum of the commodities market tends to lead
inflation or, deflation, and since the way commodities go can have a major impact on the general
price level, it may be worth your attention now. CRB Weekly

The top panel shows the yr/yr % change for the weekly price. A 52 week decline is very substantial
by historical standards and it is worth noting that the flattening out of negative momentum through
2015 happens to coincide with a topping pattern for the US dollar (the dollar still rules in the
commodities market). A further run - up in the dollar in 2015, should it weaken the CRB further,
would strengthen the outlook for eventual global deflation, which would be a very undesirable
outcome given the still elevated level of debt leverage in the world. I like the USD long term, but
think it is well overdone to the upside at the current level of 96. It is reasonable down in the 87-88
area in my view.

The CRB and other broad commodities composites remain heavily oversold and are at large discounts
to fair value measures based on cost of production plus a reasonable measure of profit (For more,
see Commodities Market from 7/30/15).

Check out the bottom panel of the chart. It shows the relative strength of the CRB compared to the
SPX. It does not get much lower than the .10 you see there, and since the continuation of the RS
line at .10 extends beyond the downtrend line for RS since the summer of 2012, we might be
looking at an interesting situation, relatively speaking.

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