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More Big-Picture Worries Drop By The Wayside?

  • Written by Syndicated Publisher No Comments Comments
    March 17, 2013

    Business Insiders: ’In the early hours of Saturday morning in Europe, the Eurozone and IMF announced a 10 billion euro bailout for Eurozone member Cyprus, whose economy is tied closely to Greece’s and is in a similar dire state.’ 

    The Wall Street Journal: ‘Talks Open a Window for Deal on Deficit!’ “Two weeks of bipartisan meals, closed-door meetings and dueling budget proposals have opened perhaps one last window for the White House and Congress to reach a deficit-reduction deal before a likely fight over the debt ceiling this summer.  Lawmakers say they now see an opportunity to forge a comprehensive plan between now and July or August.”

    Was Commodity Warning For Economy Another False Alarm?

    As I have written before, consumers understandably like to see prices for commodities decline, the more the merrier, particularly gasoline and energy costs.

    Many fundamental analysts also take commodity price declines as a positive for the economy, on the theory that consumers will have more spending money in their pockets, and manufacturers will have lower costs, so hopefully greater earnings.

    Investors tend to also take declining commodity prices as a positive for the stock market on the same reasoning.

    Unfortunately, history doesn’t confirm the optimism.

    As a five-year chart of the CRB Index of Commodity Prices shows, declining commodity prices usually indicate demand for goods is dropping and the economy will soon be in trouble, which in turn is a problem for the stock market.

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    For instance, the CRB Index of Commodity Prices plunged 57%, from 470 to 200 in 2008-2009. Good for the economy and stock market? Not hardly. The severe 2008-2009 ‘great recession’ and severe bear market in stocks accompanied the decline in commodity prices, and saw the S&P 500 also plunge 57%.

    Before the economy slowed in the summer of 2010, and the stock market experienced the double-digit decline that summer, commodity prices had rolled over to the downside again.

    And before the economy began to slow again in the summer of 2011 when the S&P 500 experienced a 19% decline that summer, commodity prices began to decline again.

    Now, after only a brief recovery last year, the CRB Index of Commodity Prices has been back to the downside since last fall in spite of the economic recovery being back on track after last summer’s stumble, and in spite of the stock market being in a significant favorable season rally.

    But is that another false alarm as took place in early 2010?

    The jury is still out on that. But on the short-term charts, the CRB Index is trying to rally again. Is it just another short-term rally attempt doomed to fail again at a lower high, or the beginning of a recovery?

    And it was reported this week that both the Producer Price Index and Consumer Price Index jumped an unexpected 0.7% in February (although the core rate, with the costs of food and energy removed rose only 0.2%).

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    To read my weekend newspaper column click hereRemain Invested But Alert! 

    Subscribers to Street Smart Report: There is important information in the ‘premium content’ area of this morning’s blog, and there will be a hotline later today in your secure area of the Street Smart Report website.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

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