Monday, November 4, 2013

Is the Commodity Super-Cycle Over Already? (excerpt)

Global industrial production rose to a new record high during August, and is up 2.6% y/y. So why has the CRB raw industrials spot price index been weak so far this year? I am starting to think that it may be a misleading indicator of the global economy. The commodity index was highly correlated with the production index from 2001-2011 during the so-called “commodity super-cycle.” It was super, but it was short, lasting only 10 years. Lots of capital was invested to increase the supplies of industrial commodities. It paid off in more supplies, but weaker prices. Even the recent weakness of the dollar doesn’t seem to be lifting commodity prices as it did in the past.

The same can be said for crude oil and gasoline. Earlier this year, the prices of both were bolstered by geopolitical tensions, which may be subsiding now--resulting in downward pressure on oil and gasoline prices. Of course, the recent decline in pump prices should provide a boost to US consumer spending.

Today's Morning Briefing: Driving the Global Economy. (1) Some positive surprises. (2) The weakness in industrial commodity prices may be misleading. (3) The end of the super-cycle already? (4) US business sales support 5% growth outlook for S&P 500 revenues. (5) Intermodal railcar loadings at record high. (6) Short-term business credit jumps to record high too. (7) Manufacturing expanding everywhere. (8) Global auto industry leading the pack. (9) Analysts turning more upbeat on global auto margins and earnings as investors boost valuation multiple. (10) “12 Years a Slave" (+ +). (More for subscribers.)

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