Important History Lesson: Part 3

Now let's look at the other side of the coin. That is the long term performance of Commodities.

This is the Reuters CBR Index (I'm afraid only up to 2008 but it serves my purpose):

The important thing to notice is how complete different Commodity bull markets look on the chart to Equity bull markets. They took off in 1973 and then moved to a very volatile plateau before taking off again in the late 70s. It then shot off again after 2004.

In fact it is the commodity bear markets which resemble equity bull markets, but in reverse.

The main Commodity indices are heavily weighted towards energy and oil in particular.

But, the pattern is the same in other commodity groups. Here is the long term wheat chart from 1956-2008:

 Different commodity, very similar pattern. Spikes leading to a volatile plateau at a higher level.

Notice the 'quantum leaps' in 1973 which lead to a decade of wheat prices 2-3x higher than anything seen in the 1950s/60s and a similar leap in 2007.

This is a very important point to realise:

Equity Bear Markets & Commodity Bull Markets are sudden, volatile and driven by fear
Equity Bull Markets & Commodity Bear Markets are gradual and driven by optimism restrained by fear in the case of Equity Markets, and hope over reality in Commodity markets...

...until greed conquers fear in the case of Equity markets

... and complacency and 'capitulation' by producers turns commodity markets.


Here's the charts in a bit bigger scale to look at:

Important History Lesson: Part 2

Let's take a closer look at the stockmarket without showing it relative to the commodities index. This is the Dow Jones from 1929

This shows the DJI on an arithmatic scale.

This shows the DJI on a log scale.

In fact from our point of view the ARITHMATIC SCALE is the most important. I know as stockmarket professionals we are more used to using log scale charts, but in fact the arithmatic scale actually gives the truer picture.

Let's take a closer look at some of those periods:

We grew up in this period. This is the DJI from 1982 through to 2000.

Which was a fairly similar pattern to 1949-1966:

But for a decade we have been trapped in a market doing this (1999-2010):

This market has many of the same characteristics of the market from the late 1960s thro' to the early 1980s. This chart is the DJI from 1968-1982, when it finally broke out of a 14 years sideways trend. Noticed how the market DOUBLED AND HALVED several times in the period, but failed to breakout above the 1968 level until 1982.

But what is also, maybe even more disturbing about the pattern of the last 10 years, is that in some respects it more resembles the 1930s. This is the DJI 1928-1943

Although the collapse in 2000 or 2008 was not as severe as 1929, the 2003-2008 recovery looks much more like the 1934-38 recovery, which was followed by a collapse.

Important History Lesson: Part 1

To understand what is going on in the world, you have to start by looking at this chart

-Sorry it is slightly crooked!

 It comes from Jim Roger's book 'Hot Commodities'.



Basically, it shows a chart of the US Stock market relative to commodity prices.







So you can read it better here a larger version below.


(Sorry it cuts off a little)

TAKE A GOOD WHILE TO LOOK AT IT PROPERLY.

It is important to note that it is not JUST about supply and demand factors relating to Commodities.

It is also about REFLATIONARY and DEFLATIONARY periods.

Stock markets like DISINFLATION

Yet another GS Sucker punch?

Given all the bullish optimism generated by last week's Fed Announcement of QE, not exactly a 'breakout' chart.

You have got to hand it to those GS guys, they are absolute pros!

How many of these combination punches will it take to knock everyone else out of the game?

I found this on a blog, entitled 'Funny video'. Apparently, it had over 2 million 'Youtube' hits when posted yesterday, and is over 3 million today.

It is actually not that 'funny'. Dead accurate more like it!

Any problems finding the video and you can see it here:

http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded

About this Pete's Strategy Observations and Comments

In setting up the various 'sub-blogs' or 'folders' for Richard's RedBox I thought 5 Sub-blogs would be enough.

But it quickly became apparent that 'RedBox: Strategy Sources' was get far too 'noisy' far to quickly.

I set up 'Musings for the more 'off-beat' stuff.

But something was still lacking....

Where I put my OWN strategy comments and observations.

THIS IS WHERE I WILL PUT THEM

- and because this is 'straight-shooting stuff' I've called it 'Pete's' comment not Redboxer's