- 20-Year
Low : One positive for commodities is the 20-year
low in commodity prices. The last 20 years have been a bear
market for commodities, creating large supply/demand imbalances
and a large reduction of production capacity. Raw material
inventories are now at historical low. Rarely before have
commodities been so inexpensive compared to CPI or financial
assets.
- Demand
from Asia/China : Another positive for commodities
is Asia.
The 1997 depression in Asia led to a very weak demand for
commodities; however, as Asia's economies rise again, there
will be a strong rise in demand for all types of commodities
as the region grows.There is a strong correlation between
the performance of emerging markets and the performance
of commodities.
- Deflation/
Inflation Forces : Commodity prices are influenced
by the forces of both deflation and inflation. If deflationary
forces dominate, commodity prices will tend to decrease;
if inflationary forces dominate, commodity prices will tend
to increase. However, this is not always the case. The past
3 bull markets in commodities over the last century 1906-1920,
1933-1948, 1968-1982 during which commodities outperformed
the stock market have each followed equity bull markets
in a rising or falling inflationary cycle. The next cycle
could have begun in 2000.
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