Wednesday, September 12, 2012
global economy turns upward
You can see the crash in commodity prices which accompanied the financial crisis during the last half of 2008. It brought the CRB index down nearly 60% from its high. But a series of steps towards monetary ease by central banks allowed asset prices to recover and economic conditions world-wide to improve. During the next two years the CRB rallied 85%.
But then prospects of a world wide contraction led by Europe and China put a damper on commodity prices which dropped until June of 2012. Since the June 2012 lows prices have again been rising. A few weeks ago the CRB index moved back above its 40 week moving average in the process of putting in the biggest rally seen during the past year.
Because central banks in Europe, China, and the US all appear to be moving toward more monetary ease I think this rally in commodity prices will continue. I expect it to take out the declining red trend line and eventually move the CRB index close to the upper green trend line.
If I am right about this we should see the global economy start to rebound smartly from its current depressed state. This improvement in economic conditions should first be evident in global stock markets. The US market is leading the world markets upward right now but I expect European markets and China to start catching up soon.