Swenlin's looking for a CRB top

[gregf]

http://www.decisionpoint.com/ChartSpotliteFiles/050318_CRB.gif

Carl Swenlin is (still) looking for a top in the CRB, I can't believe oil has gone up as much as it has. I'd be interested in the weighting of the diff commodities in that index. Looking at how gold has tracked the CRB, it would seem that if the CRB is heading south then gold has to disconnect in order for the bullish idea on the metals to remain.
I'm a bit worried about over thinking this, but, it may very well be time to leave the gold dance. Being right for over 3 years is pretty good.
Appreciate everyone's thoughts.

[HenryTo]

http://biz.yahoo.com/ts/050330/10215358.html?.v=2

From the article, this is particularly interesting:

"One interesting piece of data I've come across in my reading is how the relationship between short-term interest rates on 90-day Treasury bills and the rate of inflation affects commodity prices. Essentially, when short-term Treasury yields are below the rate of inflation, the cost of money is cheap. This devaluation of the dollar gives a lift to commodities.

"Since 1977, there have been two major or extended price moves in commodities and four countertrend moves. The first bull move was from September 1977 to November 1980. The current move started in October 2001. During both of these periods, short-term rates were lower than the rate of inflation. Only one countertrend move was accompanied by a scenario of Treasury bill yields less than the rate of inflation. This was in 1992, some 12 years after the last bullish run in commodities."

[Dubious]

[quote="HenryTo"]Either way, I don't see any way out of this unless we discover a source of cheap solar energy or if we are able to commercialize fuel cells in the next few months.[/quote]

Henry - lots of people have losts lots of money in solar and fuel cells investments. All the good discoveries have been purchased by big oil and are in a back room or buried somewhere. We can power cars with gas produced from sugar and/or corn. That way we can put our farmers back to work - most are being paid now NOT to farm.

Last time commodities rocked like this was - wait for it - 1972.

Have a great weekend!

Dubious

[HenryTo]

I am just envisioning something similar to the 1997 to 1998 scenario. I believe there will be a credit crunch sometime this year - particularly in the emerging markets. The trigger will be a combination of overcapacity, overinvestment, overconfidence, skyrocketing commodities, and then finally, tightening policies from central banks all around the world.

Thus, the marginal countries will get cut off from cheap credit. Demand for commodities will suddenly crash since the majority of the increase in the world's demand for commodities have been coming from emerging markets. A tightening Federal Reserve will also clamp down on the demand for energy, copper, and steel domestically as well.

This is the vicious cycle I'm seeing. I just don't think the current expansion in the emerging markets can be sustained. If it does sustain itself for the next 12 months, then oil may go to $75 a barrel and then the emerging markets will crash anyway. Either way, I don't see any way out of this unless we discover a source of cheap solar energy or if we are able to commercialize fuel cells in the next few months.

[gregf]

what's the linkage between emerging markets and the CRB?

[HenryTo]

Greg,

Here's a summary of the components of the CRB Index. Energy as a whole makes up 17.6% of the index:

http://www.mrci.com/client/crb.asp

Looking for a top sometime this year jives with my view that the emerging markets will top out and experience a gut-wrenching decline sometime this year.