May 22, 5:00 pm EST
Yesterday we talked the set up for a turn in the dollar (lower) and in commodities (higher). The broad commodities index hit a fresh three-year high yesterday, and hit another one today – led by natural gas and copper.
This is where we will likely see the next big boom: commodities.
Throughout the post-financial crisis period, we’ve had a disconnect between what has happened in global asset prices (like the recovery in stocks and real estate) and commodities.
Stocks have soared back to record highs. Real estate has fully recovered in most spots, if not set new records. But commodities have been dead. That’s because inflation has been dead.
And that has created this massive dislocation in valuation between commodities and stocks.
You can see in this chart below from Goehring and Rozenzwajg.
The only two times commodities have been this cheap relative to stocks was at the depths of the Great Depression in the early 30s and at the end of the Bretton Woods currency system in the early 70s. Commodities went on a tear both times.
The last time commodities were this cheap, relative to stocks, a broad basket of commodities returned 50% annualized for the next four years – up seven-fold over 10 years. With the economy heating up, and inflation finally nearing the Fed’s target, it’s time for commodities prices to finally catch up.
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