As a six-year chart of the CRB Index of Commodity Prices shows, declining commodity prices usually indicate demand for goods is dropping and the economy is in trouble.
We won’t talk about the bottom falling out of commodity prices and everything else in the financial meltdown of 2008.
But the CRB Index was also an indicator of the economic recovery stumbling in each of the last three years.
In the summer of 2010 the CRB Commodity Index fell 15%. The economic recovery stumbled, and the S&P 500 also fell 15% in that summer’s market correction before the Fed came to the rescue with QE2.
In 2011, the CRB Index fell again, declining 19.5%. And sure enough, the economic recovery stumbled again, the S&P 500 declining 21% before the Fed came to the rescue with ‘operation twist’.
Last year the CRB Index had only partially recovered from its 2011 decline, and topped out again, and the economy stumbled again with the S&P 500 pulling back 11% to its June low
And here we are this year with the CRB having topped out last fall, and not recovering at all in the winter months even though the economy seemed to be recovering again and the stock market has been in an impressive favorable season winter rally.
The CRB has declined 9% so far from its most recent peak, making lower highs on its short-term rally attempts and lower lows on its subsequent pullbacks, showing no signs of reversing to the upside.
Maybe it will be different this time, but it seems to be yet another indication that the economic recovery is due to stumble again this year.
To read my weekend newspaper column click here: Forget About The Fed Dialing Back QE3 – Buy Bonds!
To read my previous weekend column, click here: This Is the Most Critical Time for the Market Since 2007!
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About The Author
Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. 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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