Over the centuries the markets have provided some outstanding observations.

One of the great bubbles blew out in 1873 and in classic fashion crashed in the fall. At the worst of the crash, The Economist wrote:

“While the panic may be over, the results of the panic are not over.”

That post-bubble contraction prevailed from 1873 to 1895.

In 1986 Brian Marber, a London market commentator, observed:

“Life is a bear market, interrupted by progressively weaker rallies.” 

On November 13th, Luke Bartholomew at Aberdeen Asset Management in Scotland observed:

“The real worry about liquidity is that it behaves like a bad friend – it is there when you don’t especially need it, but as soon as you do need it, it disappears.”

Great Contractions

The features of the lengthy post-bubble contractions include a firm senior currency and the US dollar has been in an uptrend since 2008. Another is generally weakening commodities and the big high was set in 2008. New lows have been set this week.

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Commodities

Despite radical central bank policies commodities have weakened. It seems that such recklessness no longer drives commodities, including precious metals, up. Our case has been that the problem is that most consider that “inflation” means only rising commodities and wages. The classic definition was that it meant an “inordinate expansion of credit”.

This works whether the action is in soaring financial assets or in tangible assets.

The point to be made is that the public, not policymakers choose the game. In the 1970s the “discovery” was that expanding money supply “caused” commodities to soar. This pushed up the rate of CPI inflation. Prior to that “inflation” was driven by the utter nonsense of “cost- push” or “wage-pull”.

Then as in 1921, the action shifted to the inflation of financial assets. It continues with the regular business cycle providing brief commodity rallies. The “super-cycle” for commodities remains a theory in search of the event.

However, there are the possibilities of seasonal trades. One was for copper declining into November () and crude oil into December ().

Copper has plunged from 2.96 in May (our last exit) to 2.07. The Daily RSI has plunged from overbought at 70 to very oversold at 19. There has been no headlines about the theft of copper wire for a couple of years.

Base metals (GYX) have plunged from 346 in May to 244. That was from very overbought to now very oversold.

Another “Rotation” is being set up. Once turned, the rally could run well into the first quarter.

Crude oil declined from 62.58 in May to 37.75 in the August hit. The rebound made it to 50.92 in October and the low has been 40.50 this week. A little more “down” could set up the rebound.

Grains (GKX) rallied out of the August-September pressures, but need to complete a significant test of the low.