David Fuller's view Actually, the upward pressure has been evident for approximately a decade, as subscribers will recall, albeit from a very low starting point. Fullermoney has maintained that we were in a commodity supercycle, following over twenty years of decline in nominal and especially real (inflation adjusted) terms.

You can see this from the historical chart of what is now called the Continuous Commodity Index (CCI) which is also known as the Old CRB. It is the best single measure of commodity prices quoted in USD because it has the most constituents and they are unweighted.

Bullish supercycles in commodities follow secular bear markets. Note the bear market from the 1950s to 1971, when the next supercycle commenced. It lasted nine years - a comparatively short supercycle by historic standards. Its early demise was not unrelated to Paul Volcker's appointment as Chairman of the US Federal Reserve in 1979. Following the peak in 1980, commodity prices were in a ranging bear market until 2001, when the next upswing commenced.

Bullish supercycles are periodically punctuated by recessions, as we saw most dramatically in 2008 and early 2009. However the Continuous Commodity Index, shown here on a 10-year weekly chart, is testing its former high.

Will it fail here or resume its advance following a temporary pause?

How will we be affected by the rise that has already occurred?

What are the implications for equity and fixed interest markets?

The charts will eventually show us but I have yet to see another Paul Volcker in the wings, ready to strangle inflation with sky-high interest rates. More importantly, I do not see a White House or Congress, in their currend mindset, which would appoint an inflation fighter within the Fed. Meanwhile, the CPI was revised to under-report commodity inflation years ago. Ben Bernanke seems more concerned with deflation and his mandate regarding employment.

Countries with stronger GDP growth are raising rates but only slowly and few have short-term interest rates that are higher than their reported inflation, let alone actual price rises. The global economy is slowly gaining strength, increasing demand for commodities, and this is testing supply capacity once again. Adverse weather patterns have reduced many crop yields over the last year and stockpiles of staple foods are low. Bumper crops in 2011 are currently needed to avoid potentially serious shortages. Given gold's 10-year bull trend to date and all the money printing that has occurred globally, speculators and investors are buying commodities.

All of these factors suggest that the commodity supercycle will continue over at least the medium-term.

Most of us have already experience food and energy price inflation in this cycle and it will almost certainly increase. We can expect further reductions in the volume and weight of packaged foods. Some cheaper and less preferable substitutes may be included. The cost of clothing is about to increase, not least for cotton goods. Here also cheaper and less desirable substitutes may be used in lower-end retail items.

This important article from the Financial Times: Material difference (link may require subscription registration so PDF also supplied), details some of the likely changes.


Government bond yields have risen in recent months, variously reflecting less fear of double dip recession and deflation, increasing confidence in the economic recovery cycle, and growing concern over inflation, particularly in the developing (progressing) world.

Nevertheless both short-term and long-term rates remain historically low so rises to date are not a headwind for equities. In fact, stock markets are likely to benefit from a partial switch by investors from bonds to equities.

One should regard parallels with earlier cycles as approximations, at best. However, I did mention during this year's lengthy mean reversion consolidation that it reminded me of 2004's long pause - albeit a larger correction following a stronger initial recovery from a more dramatic decline - as you can see on this 10-year weekly chart of the DJ World Stock Index.

Might 2010's lengthy consolidation lead to a somewhat stronger ranging advance in 2011? Quite possibly, provided commodity prices do not advance too rapidly.

Lastly, this Friday should be interesting for the grain and bean complex as we will have the USDA's latest report (link may require subscription registration so PDF also supplied). The market is already anticipating a downward revision for corn stocks so will it be enough to jumpstart the uptrend once again?


The chart (weekly & daily) shows unfulfilled potential from the base so I will risk some earlier profits in corn by retaining a small long position in March futures. I may also increase it or buy another grain.