Wednesday, September 19, 2007

Commodity Price Inflation: 2000 - Present

If you click on the chart above, you'll see cash index prices for energy, grains, metals, and the U.S. dollar from 2000 to the present.

This is the backdrop against which we've seen a Fed cut in interest rates. (See Barry Ritholtz's blunt assessment).

Since 2000, energy has risen 233.97%; grains have risen 130.69%; metals have risen 162.95%; and the U.S. dollar has fallen 21.86%.

Just since 2006, energy has risen 18.57%; grains have risen 81.66%; metals have risen 36.23%; and the U.S. dollar has fallen 11.73%.

Jim Rogers believes the commodity boom has further to go. He also notes that periods of hot commodities tend to be ones that are not favorable for stocks.

Cutting interest rates when the dollar is weak and commodities are hot? Rogers expects a dollar rout and rising yields from the Fed actions.

It's the latter, history tells us, that would sound the alarm for stocks.


Interest Rates and the Stock Market

What We Can Learn From Market History


Emmanuel said...

Dr. Steenbarger,

Do you think it's possible to check the influence on the stocks of a rate cut from the Fed after more than a couple of days ?

Obviously, there is a very positive short term effect - the indexes soar. But seen a few weeks after the cut, does this phenomenon persist ?

thank you very much for your blogging !

Brett Steenbarger, Ph.D. said...

Hi Emmanuel,

I did post on what happens after strong rises, but don't have enough of a sample of strong rises after Fed days to conduct a proper analysis.