Global Commodity Markets Signaling More Trouble Ahead?

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At the risk of sounding like an alarmist (ala Zero Hedge or Stockmans Contra Corner) we are watching commodity prices head much lower tonight in Asia and it is a bit scary.

Copper which is traditionally considered a bellweather of global economic conditions took a plunge of over 6% tonight, while iron ore prices are trading at very low levels. Of course we know what has been happening to oil and gas prices.  Interestingly, China has cranked up their imports of these materials as prices have fallen to build inventories of cheap materials.  The Chinese inventory build is likely to hurt future demand as they will be able to draw from cheaper inventories when needed.

Additionally, tonight the World Bank revised lower their forecast for global GDP growth to 3% from 3.4% (and they may yet be generous in our opinion).

Todays stock market turn in the U.S. was certainly interesting.  Something most definately spooked traders as a fall from a plus 280 Dow points to minus over 100 is a somewhat rare event.  Are we near a top in the equity markets? We have no way of knowing, but when you observe interest rates falling as they have in the last month and tumbling commodity prices you have to have some concern that we are in a VERY dangerous time period.

Note that one should not expect to hold junk income issues and reap the benefits of falling rates. While junky issues performed very well in 2012 and 2013 they began to falter in late 2014. We believe that 2015 will be a year for quality while investors shun the junk. The last number of months investment grade issues have outperformed junk issues.

We would expect more fireworks for the balance of the week as investors try to figure out just what the future holds.

 

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