Pro Perspectives 8/21/20

August 21, 2020

We talked about the outlook for inflation. 

Global central banks have explicitly devalued cash, flooding the world with trillions of dollars of new money (excess liquidity).  Add to that we’ve have a supply chain disruption, meeting a demand shock.  And as the economy regains it’s prior capacity, it’s unlikely that supply will be able to ramp at the same rate that demand will ramp.  We should expect prices to be higher. 

We’re seeing the excess liquidity effect on stocks (record higher prices).  And we’re seeing both the excess liquidity effect and supply/demand mismatch effect in real estate (record high prices).  

We’re seeing it in some commodities (gold is up 27%, silver up 49%), but most commodities remain cheap, but for how long?   

Let’s take a look at some charts …

The broad commodity index is still down 20% from the highs of the year, and coming from a very low base (record lows). 

Oil is down 35% from the highs of the year. 

Food prices remain down on the year.  

What’s up, big?  Lumber. 

Lumber is up 94% on the year.  The price is up 230% from the April 1 bottom.

Is this what supply disruption meeting a demand surge might look like in broad commodities at some point in the near future?  Maybe.