Wikinvest Wire

Commodities still well shy of the 2006 correction

Friday, August 08, 2008

For all the gnashing of teeth amongst commodity bulls, there is one important point that has been routinely ignored by nearly everyone with an opinion on this matter.
The current bloodbath in the natural resource sector, though alarming in its suddenness and severity, is still well shy of the 2006 correction, a period when many naysayers were also heralding the bursting of what has turned out to be quite a pesky bubble.

Based on the CRB Index shown above, the May to October move down in 2006 - from 366 to 293 - works out to a 19.9 percent decline.

The plunge from early July to this morning - from 473 to 393 - totals only 16.9 percent.

That's not to say that the CRB won't go even lower from its current levels, momentum is now clearly working against it, but it's not as if a decline of the current magnitude is unprecedented - it happened just two years ago.

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paul lindepants said...

What if you were to factor in the dollar's depreciation?

Tim said...

Good question - maybe someone will chime in on that as it is not as straightforward as it might first appear.

Bud said...


You have probably seen this at HAI already, but just in case: Harvard To Commodities: “Thank You!”

Have a nice weekend!

Anonymous said...

Question is dollar depreciation against what? The shadowstats pre-Clinton CPI ran about 7%/yr over the 07-08 timeframe. So, you can deflate the latest price correction by about 10% to compare with 06.

John S said...

Also remember that the 2006 slump was blatant manipulation of gasoline futures by the U.S. Treasury Secretary. How will the 2008 slump compare when crude is at $80 barrel in September?

Anonymous said...

For factoring in dollar depreciation, the gold/oil relationship may be helpful. It has been in a long term (10yr.) decline, which does not bode well for cornucopians.

Cahya said...

Thank you for the informative blog.

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