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COMMODITY INSITE

2018 is similar to 1998

A few weeks ago, The Wall Street Journal posted a solid piece entitled, “Trade Fears Threaten Best Year in Commodities Since 2002.” The first sentence reads as follows, “Commodity markets, reveling in their best year since 2002, tumbled Friday as new tariffs announced by the U.S. and China reignited fears of a trade war between the world’s two biggest economies.” 

Is it really true that this year, is the best year for commodities since 2002?

Indeed, 2018 is, thus far, a banner year for commodities and the best  in 16 years. From staronline.com dated January 3, 2003 (yes, 2003!) with a headline of, “2002 a bumper year for commodities” by Kathy Fong. “LAST year was a bumper year for world commodity markets, unlike those for equities. The Reuters Commodity Research Bureau Index, which tracks the performance of commodities, rose 24% last year – the biggest jump since 1973.” Mrs. Fong wrote that on the first trading session of 2003.

Allow me to once again define what a commodity Super Cycle is and when the last one kicked into gear. From Wikipedia: “The 2000s commodities boom or the commodities super cycle was the rise, and fall, of many physical commodity prices (such as those of food, oil, metals, chemicals, fuels and the like) during the early 21st century (2000–2014), following the Great Commodities Depression of the 1980s and 1990s. The boom was largely due to the rising demand from emerging markets such as the BRIC countries, particularly China during the period from 1992 to 2013, as well as the result of concerns over long-term supply availability” 

One reason for the commodities boom of the 2000s, was because 1998 was one of the most bearish years since the Great Depression. Commodities were coming off woefully bearish period where values were historically cheap. From a chapter entitled, “Incredibly Bearish First Six Months of the Year” from Haunted By Markets with the first paragraph reading, “Though not certain, the first half of 1998 could be one of the most bearish six-month periods in history. As a matter of fact, the first six months of 1998 may have been the most bearish six months since the Crash of 1929 and in the months that followed. This is just how bearish 1998 has turned out to be.”

A few months later on October 19, 1998, also from Haunted By Markets in a chapter entitled, “Most Bearish Year Since 1929” the final paragraph read as follows. “Thus far, 1998 is the most bearish year since 1929. My work suggests that there is more pain to endure before the Bear slips into hibernation. It is premature to assume that the ugliness of 1998 has run its course.”

As it turned out, the ugliness, the weakness with commodity values per se in 1998 did not improve until the year 2000. But improve they did and they did so for more than a decade. The year 1998 proved to be a long term, major low for commodities that rewarded the bulls many times over in the years that followed.

Here is another bit of history, also from Haunted By Markets from a chapter dated September 23, 2005, and entitled, “Largest One Day Rally In 49 Years.” The opening paragraph reads. “On the first day of the week, the widely followed commodity index the CRB, rose 3.8 percent, the biggest percentage gain since the index debuted in September 1956. The index, comprised of 19 different commodities was led upward by the energy, metal and livestock markets. Even those bullish commodities were amazed the CRB could experience a one-day rally that was the largest in nearly 49 years.”

This year, fears of a trade war with China, Mexico, Canada and a number of European nations has caused commodity values in general to do a nose dive. For instance, on a, “continuous” chart of soybeans front month futures fell to $8.41 this week, the lowest price in 10 years. Other commodity markets such as livestock, cotton and others have also did a swan dive. And as long trade war fears persist, the ag-markets per se will suffer.

For commodities, 1998 was the most bearish year since 1929. But from the 1998 lows, commodities per se rose sharply in the years that followed. I believe 2018 will be a similar launch pad moving forward similar to 1998. 

To understand what may unfold in the future, look to the past, study history. And in my view, the best source of history regarding the Big Four; stocks, bonds, currencies and commodities is from my one-of-a-kind book, Haunted By Markets. Go to www.commodityinsite.com.  It is nearly a textbook about the futures markets for the years 1990 to 2015.

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