Today I was introduced to the term “commodity super cycle” don’t laugh if I’m late on the term. I also learned that the commodity rally was going on for years started in the early 2000s when China became the new industrial powerhouse.
here’s a good article on bloomberg if you want to read more If China Killed Commodity Super Cycle, Fed Is About to Bury It - Bloomberg Business
Now onto the image, if you look at the graph the fall came mid 2008 recovered some from 2009 until 2011 helped by lower rates by Fed but nowhere near its historic high before the financial crisis probably suggested underlying weakness in China.
But China kept it going up and up to a level of unsustainability. And no one wanted to believe. Who doesn’t love a bull market. All this artificial growth probably looked good on paper enough to convince the outsiders that all is well which maybe why AUD,CAD and NZD held its ground until Fed lift off talk came into the picture.
Now the hard truth I think is sinking in finally. I’m surprised that despite decent jobs data no ones (the big guys) buying AUD or any other comm. I guess part of the reason is that they aren’t convinced just yet. After all its only a few months worth of data. But the bigger fear I think is that the fall in the commodity market is nowhere near a bottom, and that there’s a further deterioration.
I’m curious what it means for equities ? As far as I know oil or energy makes up the biggest component in the S&P. If there’s no bottom for oil just yet (could be couple of years or more!) what does it mean for S&P ? Peter ?
Last note, its so easy get lost when you’re day trading and lose sight of the big picture but it helps (thats an understatement) to know the big picture, the forces that are behind everything thats going on. If I was trading back in 2011 and had enough experience to know what commodity super cycle was and inter market relationship I would have shorted comms all the way without any doubt. It would have given me the confidence to stay short regardless of the minor bounces something that a lot of new traders find it hard to manage. Undeniably its an edge, to get ahead you have to not just know but also keep the big picture in mind despite the daily happenings.
If you think (like I did) EUR, Pound pairs have had enough rally up against comms or AUD or NZD had fallen enough against USD think again. Surely there’re levels to be respected order flow and such but always remember the big picture until things change course.
By the way do we have a buy signal on GOLD yet ? FE , BB, Pipphil ?