Capacity Utilization/Dollar Ratio
Commodities Cooling In 2022?
It’s easy to misread where the true “consensus” stands on any financial forecast. Here’s a disconnect we see in current consensus thought: The “crowd” seems broadly bullish on commodities, yet the same crowd (previously known as Team Transitory) thinks consumer price inflation is near a cycle high.
Commodity Comeback?
Many analysts thought the last cycle would end with a bit of “fire” in the form of higher commodity and consumer prices, and they might well argue they would have been right if not for the eruption of COVID-19.
Icing Over?
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Will this economic cycle end with “fire” (overheating) or “ice” (a whiff of deflation)? Interestingly, hedges against both outcomes have performed well in recent months, with both gold and Treasury bonds spiking. For many reasons, though, we believe the U.S. expansion is more likely to end in a deflationary bust.
Sifting Through The Commodity Carnage
Commodities were the worst performer among the major asset classes during 2018, with the S&P/Goldman Sachs Commodity Index losing 13.8% on a total return basis.
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