The CRB vs SPX commentary we posted last week showed a somewhat different picture than this week’s CCI vs SPX brief.
The CRB has much heavier weighting for WTI Oil and varying weights for the 19 commodities that make up this index. The CCI balances all 17 commodities included in its index (includes WTI Oil) equally. But as you can clearly see, after the fall in mid 2011, commodities continued sideways down and the S&P500 DOUBLED.
And this is what central banks have built with QE – creating cash, not wealth, out of thin air to pump markets higher in a feeble attempt to fool the masses into believing the economy is fine. Corporations are continuing to buy back their shares at all time highs through near zero interest bond issuance (ie: debt). EPS reports have been buoyant for years. Quarterly reports are often “adjusted”. Very coordinated. Very deliberate. Central banks are buying up US bonds at ultra low coupon rates to keep bank rates low. The three month T-Bill rate is near zero and has been since 2009 – the rate the Federal Reserve FOLLOWS.
As deflation ramps up, commodities will continue to decline in the face of central banks trying to directly or indirectly buy up anything that moves down. The central banks will lose this “buying war” badly. Central banks can influence markets higher as they have done and at enormous cost, but only for so long. The US government just cracked $18T in debt. Europe and Japan are indebted well beyond their own GDP’s. China’s data is so suspect that one can only assume that their collapse is pending too – unless of course China can build some more empty cities soon – yes this is a facetious comment.
So what to do? Many things. Lots of resources online about deflationary markets and their impact. The key is cash and debt avoidance. And as we have forecast for some time, the US Dollar, not gold, is taking on the roll of safe haven.