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 !!!

Thursday, February 14, 2008

Comments on Commodities & The Stock Market


Difficult inflation periods are invariably initiated by surges
in commodities prices for such elementals as fuels, raw materials
and basic foodstuffs such as cereals and oils. Today, the CRB
commodities index made a new high near 385 on strength in
fuels and agriculturals. Commodities are up over 20% yr/yr,
and this continuing rise has fostered an acceleration of US
inflation as well as boosts in the price level for a number of
other economies. With US wages rising more slowly than the
general price level, take home pay is falling in real terms --
a clear recession threat.

The slowing of global economic activity has led to a mild
contraction of industrial materials prices since this past autumn
but the more general range of basic prices has continued to
surge. I have included a chart of the CRB. Have a look.

From a traders perspective, this is a bullish chart, but it shows
a powerful overbought on price momentum and relative to the
40 wk M/A. Now some seasonal weakness can be expected by spring,
but this index needs to lose substantial momentum if slower growing
economies like the US are to have a shot at a growth pick-up this
year and next.


Today was a little wicked. It was set up yesterday when the broad
market could not break through the downtrend line in place since
12/07. In typical bear fashion, players came in to sell the rally of
recent days. There is still money on the table, so the directional
test I wrote about on Tuesday has not been resolved yet.

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