Epiphany Investing

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A Glance at Commodities

Posted on | November 6, 2008 Time: 8:20 am |

I stumbled across a nice set of commodity charts over at Bespoke Investment Group…these guys consistently put out enviously useful charts, and this post includes 1 year charts for oil, natural gas, gold, silver, platinum, and a bunch of soft commodities like Corn and Wheat. The shaded “blobs” show a range of 2 std deviations from the 50-day moving average:

The first takeaway is that the majority of these commodities are in oversold territory. (see the rest of the charts here) As you know I’m not a big technical analysis guy, but I have always appreciated the moving averages for their smoothing effect on what is becoming less like price data and more like…just noise.

But a more measured takeaway is that the history of commodities is riddled with stories of massive volatility and black swan events. So in a truly global recession prices could certainly fall another 25% or more, just by giving some respect to the precedent.  What leads me to believe that we won’t see that happen is because of the massive liquidity being shoved into the world’s markets.

Inflation is the only plausible result down the road. You can’t pump that much new money into an economy without eventually (the key word) having too much money chasing too few goods. The inflation environment of 2010-2012 could be like nothing we’ve ever seen, but right now that’s just an outside, over the fence tail risk.

World banking authorities are much more in sync now than they’ve ever been, and that’s a benefit which can’t be understated. But who really knows how much slack is in the economy right now? That’s what will determine how hard the inflationary “snapback” will be, but I’d rather pick the winner of the 2024 election than try to answer that question.

Given the likelihood of OPEC continuing to “step in” around the $60 level for crude, I’m looking for current levels to hold before moving higher. This will take a whole lot of commodities along with it. I’m also bullish on the soft commodities, and continue to prefer the fertilizers route, a la’ Potash Corp.

More on this topic (What's this?)
The optimum growth portfolio for 2010 (Real Wealth - Global Wealth Report, 2/3/10)
Four Commodities… Four Ways to Profit (Investment U, 2/10/10)
Put this Commodity at the Top of Your Wish List (Investment U, 1/12/10)
Read more on Commodities at Wikinvest
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Category: Agriculture, Basic Materials, Metals, Mining
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