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What happens to commodity futures when US economy transforms from stagflation to depression and drags the rest of the world with it?
US economy is showing signs of economic weakness and higher inflation for along time. The price escalation that started with essential services like healthcare, and higher education has finally spilled into the main streets in the form of gas price and food price. The asset-based inflation has given rise to the worst financial meltdown ever. The credit sector is trembling; Federal Reserve is trying to find every means to support failing investment banks. The regional banks are on the verge of runs never seen before since the great depression.
In the middle of all this, the commodities have staged their best bull market ever. The grains, softs, energy, meat, precious and industrial metals are all on the rise like never seen in last forty years.
But what happens to theses commodities in the middle of depressed US economy and collapsed financial markets?
What happens as US economy capitulates die to debt burden and drags the rest of the world with it to deep depression?
To find the answer you must look at what happened to lumber future. Economic strength is the backbone of commodity bull markets not speculation. As real-estate markets collapsed so did the lumber price. In spite all other soft commodities stage their own bull market, lumber futures have experienced their worst bear markets.
That says as the world economies get depressed in the next several years, commodity prices will see a bubble burst and severe bear market that can run for decades.
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