For Commodities, This Is The Next Great Depression

Tyler Durden's picture

While the "sell in 1973, and go away" plan had worked out for some in the commodity space, the destruction of the last decade has only one historical comparison... the middle of The Great Depression.

The 10-year rolling annualized return for commodities is -5.1% - the lowest since 1938...


During the same period Stocks are up 7.3% annualized, Bonds 6.6%, and Cash unchanged. Dip-buying opportunity? Maybe.

UBS thinks so: Tactically we can see a bounce in Q1 before the capitulation starts

Tactically, in September 2015, we actually expected a more significant oversold bounce in commodities from last year’s late September risk bottom into ideally early Q2 2016 before we anticipated more weakness into later 2016. So far, the bounce failed since particularly in the energy complex we saw further weakness into December and the metals have been actually just trading sideways. Nonetheless, according to our Q1 US dollar pullback call, we still see the chance for another rebound attempt in commodities into later Q1, and if so the move can be significant (short covering). Such a rebound would however not change our underlying cyclical roadmap for commodities, and this means that any rebound in Q1 should be limited in price and time before we expect another and potential final capitulation wave to start into H2 2016, where we expect the CCI index to minimum test its 2008 low at 350 to worst case 320.

Commodities... on the way into a multi-year buying opportunity

All in all we are sticking to our last year’s projection and strategy call that commodities are on the way into an important H2 2016/early2017 cyclical bottom. What is missing in our view is the final act in this first bear market. With our expectation to see a final US dollar overshooting into H2 2016, we obviously also see the risk of a final undershooting and capitulation in commodities and related themes into later 2016. Crude oil, and as long as we do not see a break of the 2014 bear trend, we see minimum a test of its 2008 low at around $32 to worst case undershoot to $28 before starting a significant recovery cycle into 2017. For copper we are still more cautious since so far the bear cycle was still relatively mild versus other commodities. In this context, and after a Q1 rebound, we see copper as one of the candidates where we could see a bigger undershooting towards 1.70 to worst case see a test of the 2008 bottom at around 1.20.


On the macro side, another breakdown in commodity prices in later 2016 would very likely trigger a significant spike in cross-asset volatility. It would suggest minimum the speculation about selective defaults in the commodity area and a potential meltdown scenario in high yields, which would very likely filter through into Emerging Market debt. So on the one hand such a scenario would suggest another deflationary impulse on the macro side.


However, with expecting crude oil and other commodities moving into a major cycle bottom (even if a basing process would take a longer time into 2017), and taking into account the historically low basis of commodity prices as well as the base effect in inflation, a 2016/2017 deflationary impulse could be the final deflationary impulse before starting a bigger comeback of inflation towards the end of the decade.


So although tactically, we cannot rule out a volatile basing process in commodities into 2017, at the end of the day we see commodities from a late 2016/early 2017 bottom starting a multi-year bear market rally into the end of the decade before resuming its underlying secular bear into the first half of the next decade. For investors, this would open a time window of 2 to 3 years, where we can see a very significant and sharp bull cycle in commodity prices, and this scenario would obviously also have far reaching consequences for Emerging Markets, where we should see a big comeback starting.

But stocks and bonds are not exactly doing great either...

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drivenZ's picture

I need to post this commodities analysis from 2012. Michael Pettis is a genius and knows what he's talking about when it comes to China. Everyone should read...

Pinto Currency's picture



Commodities depression until monetary hyperinflation hits.

Then they're the only game in town.

Poundsand's picture

I think CD said this a couple of years ago.  First the depression, then the hyper inflation.  Well, the first one may be arriving.

AlamoJack's picture

It's amazing that the brainiacs at the FED continue to print when everyone knows they're scared shitless of DEFLATION.  Where do they think it comes from?  what a bunch of theives.  Remember that blurb that Greenspaz bought $5M in gold after he retired?  Didn't even try to hide the fact.  I can hear him now, "I got MINE, screw the rest of you".  What a saint.

skinwalker's picture

I've been buying up loads of comodities, particuarly semi precious metals, i.e. brass and lead. 

Government needs you to pay taxes's picture

Dont forget the tungsten points.  

luzon's picture

tungsten might be a good bet taking into account fact it is used in production of penetrating projectiles as a cheaper replacement for depleted uranium... and war seems to be on the horizon:(

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) luzon Jan 7, 2016 9:45 PM

tungsten is a good bet because you can spray paint it gold and pretend your vault is full.

Government needs you to pay taxes's picture

Golden Ballsack didnt warn us about the downward sloping portion of the commodity supercycle.

yellensNIRPles's picture

When are people going to just fess up and admit that we are already deep in a depression which is lurking in the shadows of the FEDs QE policies?

delete entry's picture

fine.. we are deep into a depression and its headed to a very bad place.

A few years ago an old man told me the world would burn while his generation was in nursing homes. Not far from there now.

xrxs's picture

Whoa, we've gone from 'since Lehmans' to 'since the Great Depression' and 'since evers.' 

the grateful unemployed's picture

at some point crude producers pull their product from the market aka the arab oil embargo, it was fun to make fun of them, but any seller will pull his supply if he thinks it will be worth more next week. we rapidly approach the moment in oil, we have been there in gold, supply begins to dry up. at the bottom the fed is printing money like crazy and the vendors want more and more of it. just add a hyper

wet_nurse's picture

Your point makes sense with the information we have been given. Because they haven't pulled back means they're using game fuckery. SA has a gun to it's head to continue to pump.

arbwhore's picture

CRB has 200 year support at 139 (now 168) so 17% more to go or about $27 oil.

Government needs you to pay taxes's picture

I'm not sure anyone has truly internalized how utterly Fed policy has failed, nor have they understood the magnitude of the feedback loops we are experiencing vis-a-vis commodity prices.  Will the Fed be able to wheel about and begin open market buys of phizz commodities in sufficient size to stave off the already-happening deflation?  Alternatively, can the paper-based price world boost prices sufficiently to counterbalance the deflation coming from the real world (commodities)?

I speak regularly with farmers.  They tell me about the bust in corn, and more recently, the bust in beef.  I see it in hay prices, too.  Should these continue, and farmers dont see a catalyst for reversal, we're gonna see deflation at the supermarket, and we SHOULD see deflation in the petrochemical complex.  I cant imagine cotton is immune, suggesting we'll see price declines in basic clothing.

In a leveraged world, when the input prices crash this much, bankruptcies are INEVITABLE.  This wave is coming, and if it happens, we're gonna live a Great Depression.  What are the other 'outs'?  Global war . . . or dramatic shift to central planning/price/capital controls.

delete entry's picture

one way or another they'll fight inflation with taxes and money printing. Why do we have to pay taxes if they print money?

new game's picture

agreed, but from the feds perspective, they haven't failed. what pisses me off the most is how this turmoil affects average peoples life. having to sell their home, move, causes divorces, fucks childern over and on and on. so one moar tyme: fuk the fed and all the club members. FUK THE FED...,  was that an echo (from the highest hilltop): FUK THE FED!!

waterwitch's picture

Are not gold and silver "commodities"?

BlackMagician's picture

Gold and silver are real is government scrip

Pumpkin's picture

Well thank God I'm not a commodity then.  Oh.....wait.

Fed_is_Love's picture

It will be a Greater Depression.

AlamoJack's picture

I've been watching commodities daily for a couple of years now and not the metals.  The only one that hasn't crashed (yet) is lumber.  Gotta' keep building those houses you know.  Beef at the feedlot is down to $165 on the hoof, from ~ $265 in the last 4 months.  Beef grazing in your yard is at ~$135.  No one is eating beef.  I forget what the pork is at.

Government needs you to pay taxes's picture

Framing timber (pine) inventories in the SC Midlands lumber yards have been riDONKulously high for 9 months.  Those who have watched these levels compare the build to 2007-8.

BigSpruce's picture

Not true. I buy and sell stumpage ( standing timber ) for a living. I am getting 30-50% less for my delivered logs than I did a year ago. Its a bloodbath out there

Reginald Blome's picture

@bigspruce I sent you a contact request. I'm interested in investing in this area and am hoping to find someone knowledgeable who can help educate / guide me. Am willing to pay. Thank you in advance.

Government needs you to pay taxes's picture

Confirmed here in SC.  They just aren't cutting the pine here in SC like they have in prior years.  NO DEMAND.  Mills are full.  Lumber yards are full.