Redux: Bubble of Historic Proportions

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

Below is the first column I wrote this year. Based on the fact that bond futures just now fell to a level not seen since October, 2014, 4 years ago I thought it timely to post again what I wrote 9 months ago. Hope you find something of interest in my ramblings below.


January 5, 2018

Bubble of Historic Proportions

In 2017, commodities per se as measured by the CRB Index posted a 11/2 year low on June 21, bottomed out and quickly headed north. On the final day of 2017, the CRB hit a 10 month high and back to the levels of mid-January. With the benefit of hindsight, it is clear the CRB was roller coaster like last year offering something for the bulls and something for the bears. But a New Year lies ahead and hopes are high that commodities will do better and be less roller coaster like.

I am on record as forecasting that commodities in 2018 will either go up or down. I am convinced of that. But here are a few more of my thoughts ideas about the opportunities for investors and traders in the New Year.

In the first half of 2017, the only commodity markets to do well on the long side of the ledger were cattle, hogs, wheat, lead, aluminum, gold, cotton, corn and silver. Values for each of those markets improved right into June which also happened to be the month the CRB Index bottomed and began to march higher into the end of the year.

The weak markets in the first half of 2017, were, soybeans, nickel, natural gas, crude oil and products coffee, cocoa and sugar. Each of those markets were defensive into June. And in the case of soybeans, cocoa and sugar, prices moved even lower into the final weeks of the year.

The impressive rally with the CRB Index from June into the end of 2017, was due in large part to the fact that crude oil and copper did exceptionally well in 2017. As a result, the general consensus is hard assets will do much better in 2018 than 2017. Or, the previous 6 years for that matter. Yes, a growing consensus is that a whiff of inflation will be seen in the New Year, something not seen since the recession ended in 2009.

Several major Wall Street firms are now predicting that due to global economic growth and in particular from the United States and Asia, commodity inflation will up-tick by 10% in 2018. However, the rise in inflation they are calling for is mostly with industrial metals and the energy markets. Few, if any, major firms are looking for much of a rebound with the ag-markets, grains, livestock or tropical markets such as cocoa, sugar and so forth.

But down thru history, two leading indicators for commodities per se are copper and crude oil. Copper prices ended 2017 at its best level in 4 years and crude at its best level in 21/2 years. Plus, gold prices enjoyed their best rally in 10 years because the dollar endured its most bearish year in a decade.

History shows as the dollar moves lower, commodities tend to move higher. History also shows that commodities per se tend to follow the lead of crude oil and copper. Looking at history, it is no great surprise, therefore, that a number of Wall Street firms are calling for a rise in inflation in the New Year.

If there is indeed is a meaningful rise with inflation the U.S debt markets and Treasury bonds in particular are headed a great deal lower. I have stated time and again the bond market is a huge bubble waiting to be popped and that remains my conviction. The debt markets will pop for certain if inflation is greater than expectations.

In late July, Bloomberg News published a piece entitled, Greenspan Sees No Stock Excess, Warns of Bond Market Bubble. Mr. Greenspan said, By any measure, real long-term interest rates are much too low and therefore unsustainable, the former Federal Reserve chairman, 91, said in an interview. When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.

Mr. Greenspan went on to say in the same article. The real problem is that when the bond-market bubble collapses, long-term interest rates will rise, Greenspan went on to say, We are moving into a different phase of the economy -- to a stagflation not seen since the 1970s. That is not good for asset prices.
History also shows that when long term interest rates rise it is not bullish for stocks or commodities. Higher rates and lower bond prices slow economic growth, cap rising prices and keep inflationary pressure in check. That is how it is and that is why the Fed employs such a monetary policy.

In the New Year, I suggest probing the short side of the US debt markets, T-bonds and T-notes. As inflation rises, the debt markets should work lower while at the same time commodities either go up down. The big story in 2018 will be the loud and I mean loud popping of bond market that is a bubble of historic proportions.


As I type furiously away, crude is sharply higher and bonds sharply lower. Historically, such a combination is known to foster inflation. But few are viewing the Big Four: stocks, bonds, currencies and commodities as being in an inflationary envirnment. And for today, they may be right. But then, there is tomorrow.

Thos interested in not only tomorrow but the past should check out "Haunted By Markets" by going to It is there you will find what unfolded with the Big Four when bonds did a nose dive while crude prices ratched upward. Check it out!

The time is 10:10 a.m. Chicago

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