December 13, 2019
On Friday we talked about the outlook for commodities, as the spot that should be among the biggest beneficiaries in the economic environment over the next twelve months.
Let’s look again at this long-term chart of the broad commodities index (the CRB Index)…
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Now, the length of the economic expansion is often discussed in the media. It’s the longest on record. And with that, the Wall Street crowd has found it very difficult to get too optimistic on the outlook for stocks and the economy. But let’s think about this chart above: Is this what commodities should do in the longest economic expansion on record? You could say the same about inflation, which has been pronounced dead in headlines and magazine covers. The two (inflation and commodities prices) go hand-in-hand. What if this chart on commodities (and persistently low inflation) tells us that the decade that followed the financial crisis was indeed a depression, and central banks were only able to manufacture enough economic activity to buffer the pain (not a real economic expansion)? And now, instead of at the tail end of one of the longest economic expansions on record, we’re in the early stages of a real expansion, driven by fiscal policies and structural reform that has started in the U.S. and will be implemented abroad (Europe, Japan, China).” This logic (“early stages”) would align well with the script of the late 90s boom period that we’ve talked about. Remember, after the Fed flip-flopped on monetary policy from ’94 to ’95, they set off a boom in stocks and the economy. The stock market tripled into the end of the decade, and the economy grew by 4% annualized for eighteen consecutive quarters. The CRB index nearly doubled from ’95 through late ’97, before take lower from the effects of the Asian Financial Crisis. |