April 24th, 2011
Econintersect: Erik McCurdy, senior market technician for Prometheus Market Insight has been analyzing charts every day for over 15 years. What he sees in commodity prices today is an "unsustainable rate" of price advances across the commodity spectrum. McCurdy syas that the CCI (Continuous Commodities Index) has doubled in the past two years and the rate of the climb has increased over the past ten months. This type of behavior is commonly referred to as a parabolic advance and such advances usually end suddenly with dramatic declines. Follow up:
Follow up:The graph below (from Wikiposit.org) shows the history of the CCI. We can see that there were two very steep advances in the 1970s and the 1980s that did not end with steep declines. However, those advances were associated with shortages (especially energy) and periods of high general inflation. In the current situation neither of those factors are in play.
The graph shows the collapse of the previous parabolic rise in 2008, but it did not fall back down to the levels of the 1980s and 1990s, partially because the graph shows nominal values for the index and is not adjusted for inflation.
McCurdy's call of a decline of at least 20% would bring back to the 550 level, which is the peak of the 2008 commodity bubble. It would have to fall back by 50% to reach the lows of early 2009.
McCurdy didn't quote Herbert Stein, but he well could have. Stein, economic advisor to two presidents (Nixon and Ford), famously said (from Wikipedia): "If something cannot go on forever, it will stop."