Businesses are still laying off employees, those still employed are working more hours for less pay, home foreclosures remain near record levels, consumer credit is still plunging, and defaults on commercial real estate are increasing. However, the stock market has gained 53% from spring lows, Wall Street banks are reporting record again and oil prices have more than doubled since last fall. What’s going on? How can Wall Street enjoy a strong recovery while the rest of America suffers? Will commodity markets followWall Street or Main Street?

Since last summer, we have held a negative view on most commodity markets. We believed recoveries on both WallStreet and Main Street were required before the majority of commodity markets could enjoy a demand resurgence strong enough to support sustained bull markets. However, the Continuous Commodity Index reached a new thirteen month high this week and gold pushed into record territory. Is it possible commodity markets could experience major bull moves while the world’s two largest economies (Japan and the US) remain mired in stagnation and/or recession? To help answer this question, we must compare the current recession to past recessions. In all recessions since the Thirties, the Federal Reserve was the primary culprit. When inflation threatened to destabilize the economy, the Federal Reserve raised interest rates and restricted credit to curb demand, which cooled economic expansion. When inflation subsided, they reduced interest rates and made credit easy again. Economic growth always returned following Fed easing. However, this is a recession of a different kind.