The theme of commodity deflation is really becoming the overwhelming signpost for investors today and is getting almost entirely overlooked. In the past week, we’ve seen 5 year lows in Copper and Gold and the beginnings of the ‘double-dip’ recession in oil that I have been predicting for weeks.
The reason you must be aware of the completeness of the current commodity meltdown is one of historical precedent and economic laws. One important precedent is that commodity deflation has always been accompanied by a concurrent disaster in other capital markets; whether we call this the retreat from ‘risk-on’, or a real recessionary signpost, this is usually a strong ‘canary in the coal mine’ that things are going to get rough.
And even though there’s been a drubbing this year in the grains as well as the metals and certainly oil and natural gas, the one potential positive to be named is that this deflationary cycle, in metals particularly, has been going on for quite a long time:
Still, we’d not like to have been out of the stock market for the past 5 years, would we? No, in this case “Doctor Copper” has had a very, very premature diagnosis of ill health, one we were very right to ignore.
But still, the continued drop in metals and the coming secondary drop in oil is worrying.
We can rationalize both in the very suspicious growth figures that have been reported by the Chinese: We…