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Chart Presentation: CRB times DXYInter-Market
Relationships Analysis We are going to ease off on our positive dollar view for the time being simply because the euro is still holding above the 1.25 level. At times in the past we have compared the current markets situation to 1982, 1990, and even 1998 and 2000. Today we are going to show how conditions are really quite similar - from a certain perspective - to 1998 following the Asian/LTCM/Russia/Brazil crises. Below are two charts of the CRB Index times the U.S. Dollar Index. The top chart is from July 1998 through June 1999 while the lower chart starts in July 2008 and runs through the end of last week.   It is common knowledge these days that commodity prices are stronger when the dollar is weaker- and vice versa. Dollar weakness tends to lend a bid to the commodity markets while dollar strength often serves to move commodity prices lower. While there have been many times in the past that the dollar and commodity prices have risen or fallen in tandem the recent reality has been that these two markets move in opposite directions- often on a minute-to-minute basis. [Editor's note: You can see the charts side-by-side here.] We will argue that the key for the trend for cyclical growth is not determined by commodity prices or the dollar but rather by the combination of the two. If, for example, the dollar rises 5% and commodity prices decline 10% in response... the trend for cyclical growth is negative. If the dollar falls 10% while commodity prices gain 5%... the trend for cyclical growth is still negative. The product of commodity prices times the dollar declined into late 1998 before bottoming out just below 18,000. The same product declined into late 2008 before bottoming out... just below 18,000. In other words this is the second time in ten years that commodity prices adjusted for the value of the dollar have hit a major cyclical low at the exact same price and since we know that cyclical growth and the equity markets began to recover in earnest as we moved through the end of the first quarter of 1999 we are going to argue that, all things being equal, the light that we keep seeing off into the distance may actually be the end of the tunnel instead of an approaching train. Mar 9, 2009 All Rights Reserved, 2009. IMRA subscriptions
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