The two buzz words doing the "circuit" right now are "double-dip" and "recession". Yes one cannot deny that the action of the US bond market is suggesting on no uncertain terms that economic growth and inflation will be a figment of one's imagination very soon…….but can we trust the action of the bond market? Put it another way, is the behaviour of moms and pops throwing in the towel with respect to the equity market and piling headlong into treasuries and investment grade corporate debt rational? Is it rational that many companies can now issue debt for less yield than their respective dividend yields? I don't think so! It certainly appears that the average punter in the street has absolutely no (as in zero) concern of a rise in interest rates a few years from now…….and by default no fear of a rise in inflation. OK what would we look for, in real time, as evidence supporting economic expansion and or inflation? In short rising raw input prices – commodities. Enter the CRB Spot All Commodities Index. This is a measure of price behaviour of 22 economically sensitive basic commodities whose markets are the first to be influenced by changes in economic activity. Accordingly, it serves as one early indication of impending changes in business activity. What distinguishes the CRB Spot index from the CRB Futures index is that it is based on spot prices. A spot price is a price at which a commodity is selling for immediate delivery. Some of the prices used are nominal prices in that they are not actual transaction prices. Often they are exchange prices – a price for a completely standard commodity which eliminates the effect of minor quality changes on actual transaction prices? . Trade publications may use this type of price for commodities such as cocoa beans, coffee, and wool tops. The price for print cloth is an average of the spot price and price for the most distant forward contract because it was determined that a large part of the sales of print cloth are made on a contract basis. The 22 members are: burlap, copper scrap, cotton, hides, lead scrap, print cloth, rosin, rubber, steel scrap, tallow, tin, wool tops, zinc, butter, cocoa beans, corn, cottonseed oil, hogs, lard, steers, sugar, and wheat. Notice the distinctive lack of energy related commodities! In any even this is a very serious list. Suffice to say this, if the CRB Spot Commodity index is rising then it is a sure sign that something "determined" is happening on the economic expansion/inflationary front. I would rather trust the price behaviour of things that the retail investor has never "herd" of before……..rather than the price of the US 30yr treasury or an ETF of investment grade debt! Bet you don't know what Burlap is! Is the index rising? Well beauty is in the eye of the beholder. That looks like a multi-month high to me! Based on this chart it would appear that US treasuries and fixed income products in general are high risk "assets"! Still not convinced? Well how about the price of coal, steel, ethanol, pulp, iron ore, shipping rates (Baltic, Contex, Harpex), and least of all the Shanghai Composite! As funny as it may seem just as everyone starts queuing up to interview "Rosie" and he gains "rock-star status" commodity prices start taking off.

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