Welcome new reader!

Financial news I consider important, with my opinion, which is worth as much as you paid for it.

Wednesday, June 27, 2012

Commodity Market - Is the bull back?

Back on March 24th 2009, I declared the Commodity Market bull is back.  We may be close if not already at the next bottom poised for the next leg up.  The upward exponential drawing below of course may be materially wrong, but it should correct quickly whenever bottom hits.

Timing of course is IMPOSSIBLE!  Catching falling knives is very painful.

Investing in this sector will only marginally help offset the cost of living crunch everyone will continue to face once the bull resumes.  This is inline with my 2008 post of global consumption squeezing the American consumption.

Back in 2009, the graph I showed was the standard CRB index.  What I didn't realize at the time, like most indexes, it is changed over time to re-prioritize weighting of the underlying components.   The previous revision to this index was more evenly distributed across all resources.

Although weighting differently may be more meaningful, it does skew the graph unfairly.  When an ETF composition is changed to be "fair" the entire index should be recomputed back to the start of the index to reflect a graph that has the same underlying funds consistently.

That however is not done.  I found an index where the composition was NOT changed with the last revision,  called Reuters Continuous Commodity Index (CCI).   The chart looks materially different than the current CRB index.

I believe that keeping the same mix of items is more realistic to show the impact of commodity prices.
Look at the chart below to see how even in 2008 crash, the bottom BARELY touched the high in 1980!
This graph shows what I believe is a more parabolic price change that we are experiencing.  Some deem it inflation but wages are not rising.   I deem it simply what it is, commodity prices are rising.  This is NOT about strictly US dollar debasement.  It is about poorer countries buying more commodities driving prices up for Americans.  Countries like China and India simply did not compete with Americans for resources 30 years ago as percent of purchasing.  Also consider watching Chris Martenson on exponential growth and commodity issues.

The only question is, how far does it go down before the trend of up up up resumes.  Strap on, for whenever the next leg up starts, it won't be fun.  High unemployment AND rising costs.

Usual suspects to invest in.  OIH  , DBA, GLD, GDX, etc.  The ETF GCC tries to mirror the blend that the CCI presents.
(UPDATE: 6-28, end prices.  GDX-43.30, GDXJ 18.20, OIH 34.30, DBA 27.77, GCC - 27.55, TAN - 17.74)



No comments:

Post a Comment