Source: Visual Capitalist
Collapse of Commodities in One Simple Chart
November 20, 2015 12:00pm by Barry Ritholtz
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Structural Changes at S.E.C.
2014: Barron’s Michael Kahn says: Gold: It’s Time to Buy
http://www.barrons.com/articles/gold-its-time-to-buy-1416432694
Over the years, I have made some bold calls on gold and often the pushback from those not sharing my views has been rather vigorous, to put it mildly. It’s time to once again risk the wrath of the haters and say that gold finally looks ready for a recovery.
No, I am not saying it is heading back up to its 2011 peak above $1,900 an ounce, at least not for the foreseeable future (it traded at $1,195 Wednesday afternoon). However, I do think in the long term we will see an important bull market return.
For the here and now, a potential reversion back to its 200-day moving average in the $1,250 area would indeed be a good first step on the road to serious recovery. If and when it gets there, we will likely see the chart set up for a run back to $1,500. We’ll look at that chart below.
Simple Enough: Commodity Research Bureau (CRB Index Level) Date
473.52 Thurs. 07/03/2008
312.93 Fri. 06/20/2014
184.12 Thurs. 11/19/2015
Oil was @ $145.29/bbl. on that date in 2008. It was @ $106.05 in June ’08 and yesterday the December contract settled @ $ 40.54. But, oil is only a part of the story. The usual correlations are skewed just as they are in liquidity, supply/demand, interest rates, and in 50 years, looking back, however this distortion unwinds, people will ask: ‘was that the period when the so-called “free market” was dissolved’? The Fed (fiscal) interference is monumental; the failure of the Republicans to help govern the economy (monetary) seems more 19th Century than the 21st global economy. These people in D.C. had better awaken and realize they have a role to play in a planetary complex w/ over 7.2 billion souls leaning into the #1 economy w/ a GDP somewhere in the $20 T. range.
Three years earlier in 2005, the formerly equal-weighted CRB index (in which crude oil had a 5.9% weight) was revised to give crude oil a 23.9% weight, and energy overall (including heating oil, unleaded and natgas) a 39% weight.
This seemed like a clever move during a huge crude oil rally. But it resulted in the CRB index being crushed after mid-2008.
Meanwhile, the earlier equal-weighted index carries on as the CCI (Continuous Commodity Index), and an ETF (symbol GCC) tracks it.
My trend-following indicator for CCI hasn’t turned up yet. And it probably won’t as long as a strong dollar keeps commodities under pressure. But every dog has its day.
The Baltic Dry Index is setting new lows. http://www.bloomberg.com/news/articles/2015-11-19/baltic-dry-ship-index-drops-to-record-as-iron-ore-growth-slump
I assume these are all signs of continued global economic growth with the US consumer in the lead with consumers in other countries working hard to catch up. The stock market can only go up from here.
They increase in the supply of commodities has been bad for commodity producers and their financiers.
It’s good for everybody else.
Enjoy.
It’s called mean variance optimization for a reason.