Fun with the Michael Masters report

Among many other things that Michael Masters might have you believe is that soaring commodity prices are somehow unprecedented in history. The chart below was an integral part of his congressional testimony (.pdf) last week when he asserted that institutional investors "are one of, if not the primary, factors affecting commodities prices today."
Look at those level prices up until the point that institutional investors starting moving money out of stocks and bonds and into commodities. That's some pretty convincing chart-work there.

Get the pitchforks! We'll teach those "index speculators" a thing or two.

But didn't commodity prices rise sharply back in the 1970s?

Apparently not - at least not according to the "S&P GSCI Spot Price Commodity Index", an index that is new to me. The venerable CRB Index seems to tell a little different story about commodity prices over the last 40 years.
In fact, that move from 1972 to 1980 makes the recent move look a little tame by comparison. Note that the chart above is a year or so old - the CRB currently stands at about 430 which is a little over double the level in 2002.

By comparison, the index more than tripled from 1972 to 1980.

Maybe it's just the index - "spot" GSCI versus CRB - that accounts for such a big discrepancy. Using data from Dr. Craig Israelson's paper The Benefits of Low Correlation, this is what a $10,000 investment in the "non-spot" GSCI would look like since 1970.
That looks like a pretty steady progression over the last 40 years with a big surge over the last decade.

But, as I learned long ago and discussed in "Fun with multi-decade charts", for a single curve going back almost 40 years, you really should use a log scale.
Wow - that's a completely different curve than the first one in this post - the one that was presented to Congress last week as "proof positive" of the undue influence of speculators on commodity prices.

You know, I've got a couple speaking gigs under my belt now, maybe I should see if I can present my data before some Senate panel. Maybe we can talk about Alan Greenspan and fiat money while we're at it.

Note: There will likely be more on the Masters report later in the week.

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UPDATE: Monday, May 25th, 1 PM PST

Here's the CRB "spot" index going all the way back to the 1960s - it tells much the same story as the CRB Index above. When it rises another 30 percent or so we can all say, "Gee - that's as big as the increase in commodity prices from back in the 1970s (when there were no index speculators)".

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