Saturday , 22 October 2016

The CRB Index Is Foreboding – A Clear Message Of the Dangers Ahead

For those who think the CRB Index says nothing about global growth invest accordingly at your own peril because the commodity index is screaming loudly that the rate of global growth is plummeting – just as it was at the height of the Great Recession. The CRB index is foreboding – a clear message of the danger that lies ahead.

The above comments, and those below, have been edited by (Your Key to Making Money!) for the sake of clarity [] and brevity (…) to provide a fast and easy read and have been excerpted from an article* by Michael Pento ( originally entitled  Ignore The Commodity Message At Your Own Peril and which can be read in its unabridged format HERE.

The synthetic economy of China, which once sucked up the natural resources of the globe in order to create the world’s greatest fixed asset bubble in history, is now in free-fall and it is driving down the price of commodities as global growth grinds to a halt…(19 commodities make up the CRB Index: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat.)

For years China had been a huge growth market for multi-national companies however its recent rut is affecting both domestic and international companies and countries around the globe and are now reeling from its collapse…

Eurozone – Germany, France, Italy, Holland, Finland

Strong demand from China had also been a boom to the Eurozone. Germany’s auto industry, France and Italy’s luxury goods, Dutch and Finnish chemicals, were all beneficiaries from China’s huge growth…

The Asia-Pacific Region – Taiwan, Korea, Malaysia, Australia

The largest effect of China, however, is in the Asia-Pacific region with China’s three major trading partners Taiwan, Korea and Malaysia have seen a significant slowdown and the good times in Australia, known as “China’s quarry” which had enjoyed a decade-long boom selling iron ore…appear to be over. Australia’s July PMI dropped to a 5-month low of 50 while the Markit PMI plunged to 47.8, which was the worst in two years.

South America – Brazil

Brazil is one of the ten largest markets in the world producing steel, cement, petroleum, lubricants, propane gas, and a wide range of petrochemicals and was also a huge beneficiary of the Chinese real estate bubble.

Brazil recently lowered its growth output from a small gain to a contraction of 1.5%. Standard & Poor’s has downgraded Brazil’s debt outlook to “negative” from “stable” – a signal they are preparing to drop its credit rating, which now sits just one notch above junk. Brazil’s currency, the real, is the weakest in 12 years against the dollar and the stock market is at a 6-year low…

The Fed Role

[In spite of the huge global economic risk China and all its related trading partners present, however,] Atlanta Fed President Dennis Lockhart recently said he feels confident the economy is ready for a rate hike…In fact, the current median dot plot from the FOMC assumes a 1.5% Fed funds rate at the end of 2016…

While the Fed’s intentions are to slowly begin hike rates in September they, and the other central banks, don’t realize the dystopias they have created: $200 trillion worth of debt disabled and asset bubble ridden economies that have become totally addicted to money printing in order to avoid a deflationary collapse. Once the artificial support is removed these bubbles will begin to crater and, as such, it shouldn’t take long before the Fed inverts the yield curve and money supply growth gets chocked off. When that happens the economy will be in the middle of another 2008 variety collapse.

The CRB index is foreboding – a clear message of the danger that lies ahead. Still, U.S. stock values are near record nominal highs and are outlandishly valued in relation to GDP. For those who claim that we are an island economy and don’t care if the rest of the world falls apart, I’d like to know what will happen to U.S. multi-national companies’ earnings (Q2 S&P500 revenue growth is already at a negative 3.3% and earnings declined by 1.3%) as global trade evaporates and the Fed sends the U.S. dollar even higher.


With the U.S. averages at such lofty levels it seems prudent to heed the warning declared by cratering commodity prices. If you doubt that conclusion just recall how wise it was not to ignore the same commodity message broadcast to investors beginning in the summer of 2008.


Related Articles from the munKNEE Vault:

1. September To Bring Stock Market Crash & Beginning Of Economic Depression

We are now on HIGH ALERT!!!!! Grand Supercycle degree wave (IV)’s decline could start soon. We need to pay close attention and be prepared for a September 2015 event that triggers a stock market crash and economic depression.

2. The Market Is Overvalued, Over-believed & Over-margined – Plan Now For A MAJOR Correction

With the market richly priced, forward returns just don’t look good enough. Worth the risk? I think it’s better to have a game plan in place that enables you to capitalize on the next major market correction – which in my opinion could be in the -40% to -60% range.

3. These 2 Charts Confirm That Stock Markets Are In “too-good-to-be-true” Territory

Stock markets around the world have been on an extended bull run for a long time now and 2 new charts, from Deutsche Bank and Bank of America Merrill Lynch, show that shares are in too-good-to-be-true territory and that, if history is anything to go by, they’re due for a sharp correction.

4. Curtains To Come Down 70% On Greatest Bull Market & Bubble In History By 2017

Where does the Dow go from here? Maybe up a little higher but, more likely, it’s all downhill from here though perhaps that statement is misleading. More like, down a cliff.

5. Current Equity Market Valuations Defy Logic – Here’s Why

What is unique about this rally is the excessive premium being placed on future earnings and economic growth. Unfortunately, the level and term structure of interest rates are not confirming the broad logic behind these equity market valuations. In fact, they damn that logic. In the past, when high valuation measures occurred and subsequent GDP was weak, the stock market has posted substantial losses. What can we expect this time?

6. Warren Buffett’s Favorite Stock Market Valuation Tool Is Screaming Again

Warren Buffett’s favorite macro valuation tool is screaming that U.S. stocks are nearing bubble territory. This is a time to stay tactical, focus on income, and look to buy pockets of value as you see them.

7. Is This the Beginning of the Expected Stock Market Crash?

For months numerous articles have been posted on this site substantiating why a stock market collapse of epic proportions is in the cards to happen soon. The basis for such a conclusion are based on a diverse perspective that warrants your attention.

8. Extreme Makeover of Markets Coming – Here’s Why

Extremes eventually reverse, and generally in rough symmetry with their explosive rise and we are reaching such extremes in valuation, complacency and margin debt. When the speculative frenzy dissipates, central banks will be the only buyers left and unless the Fed increases its balance sheet from $4.5 trillion to $14.5 trillion in a matter of months, even central bank manipulation will be swamped by sellers exiting bursting-bubble markets.

9. Tobin’s Q Says Stocks Are Disconnected From Reality – Here’s Why

According to Tobin’s Q, equities in the U.S. are valued about 10% above the cost of replacing their underlying assets — higher than any time other than the Internet bubble and the 1929 peak. Here’s why.