Important History Lesson: Part 3

Now let's look at the other side of the coin. That is the long term performance of Commodities.

This is the Reuters CBR Index (I'm afraid only up to 2008 but it serves my purpose):

The important thing to notice is how complete different Commodity bull markets look on the chart to Equity bull markets. They took off in 1973 and then moved to a very volatile plateau before taking off again in the late 70s. It then shot off again after 2004.

In fact it is the commodity bear markets which resemble equity bull markets, but in reverse.

The main Commodity indices are heavily weighted towards energy and oil in particular.

But, the pattern is the same in other commodity groups. Here is the long term wheat chart from 1956-2008:

 Different commodity, very similar pattern. Spikes leading to a volatile plateau at a higher level.

Notice the 'quantum leaps' in 1973 which lead to a decade of wheat prices 2-3x higher than anything seen in the 1950s/60s and a similar leap in 2007.

This is a very important point to realise:

Equity Bear Markets & Commodity Bull Markets are sudden, volatile and driven by fear
Equity Bull Markets & Commodity Bear Markets are gradual and driven by optimism restrained by fear in the case of Equity Markets, and hope over reality in Commodity markets...

...until greed conquers fear in the case of Equity markets

... and complacency and 'capitulation' by producers turns commodity markets.


Here's the charts in a bit bigger scale to look at: