Thursday, December 29, 2011

10 Commodities that Are Going to Give Krugman Nightmares in 2012

Paul "There’s really nothing here to shake my view that deflation, not inflation, is the threat" Krugman is going to have nightmares in 2012. While Krugman talks about a "core inflation" that removes food an energy from it's index.The real core, that is the the things we really need to survive, milk, cattle, gasoline and heating oil, all soared in 2011 (see chart below). They are the real indication of what is going on with prices. We can survive without, at least for awhile, copper, lumber, zinc and nickel, BUT energy and milk fuel us, in one way or another, every day, and those are the prices that soared in 2011, along with gold,,  rice (+15.27%), peanuts (14.75%) coarse wool (13.58%) and potassium chloride(+27.89%). Given the money printing rampage that Bernanke has been on in recent months, none of these commodities are going to stop climbing in 2012, but most others will likely join them. Yeah, Krugman will likely pull urea (+30.20%) from his index, but when all other prices are climbing, he will have to resort to his smoothing tricks, to show that prices really aren't going up.

LastYTD % Change
Feeder Cattle150.27521.24%
Gas Oil921.2519.95%
Brent Crude Oil109.2715.32%
Heating Oil2.908514.40%
Live Cattle123.213.71%
Crude Oil101.3410.90%
RBOB Gasoline2.688810.64%
Lean Hogs85.757.52%
Source: CNBC Analytics/Thomson Reuters


  1. Peanuts in my local grocery store are up 50% currently vs. the summer. For the store brand, they are now around $3.20, and used to be $2.15. Also my favorite brand Planters stopped using glass containers. They switched to plastic, which reduces the shelf life and I can't reuse Planters bottles for storeable foods because the plastic is oxygen permeable.

  2. You can't just cherry pick and then call it inflation. While there are some items that have had significant price increases, there are also plenty that had significant price decreases.

    According to the chart you listed, the price of cotton has dropped by 32% since last year. The price of rubber has dropped by 21%. The price of nickle has dropped by 21%. The price of natural gas has gone down by 12%.

    This variation is why you have to look at the whole picture, not just specific items. The whole picture is that there has not been runaway inflation in the last year. The CPI for the past year is 3.5%. Core CPI is 2.2%. Most of the indexes on the chart you listed, actually have a negative change since this time last year, some substantial.

    Moreover, as much as you complain about Paul Krugman's "smoothing" of inflation, you are doing the same thing, just instead of smoothing over 3-4 years, you are smoothing over one year. There was a small spike in inflation, particularly non-core inflation, in the first half of 2011. Since then inflation has come down and there have actually been a few months of deflation in non-core prices.

    As I've said before, inflation simply has not been a problem.

  3. Commodities, DBC, seen in this Finviz Screener, with the exception of oil, USO, and gold, GLD, are headed down in dollar terms, but are going to cost more more in local currency terms in 2012: SLV, UNG, DBB, JJN, JJC, JJT, CUT, LD, JJU, BAL, JJA, FUE, JO, GRU,COW, FUD, CORN, USCI, DBC.

    The currency demand curve, the ratio of small cap pure value shares, RZV, relative to small cap pure growth shares, RZG, … RZV:RZG … has been trading lower since July 2011, evidencing that competitive currency devaluation is underway. A.Trader.Mind relates The Euro Is Pulling Down All Risk Currencies. The failure of world major currencies, DBV, and the emerging market currencies, CEW, in July 2011, the rise of the US Dollar, $USD, UUP, in November 2011, means that commodities are priced in dollars are going to cost more in local currencies. This inflation is going to moderated some by as inflation destruction, stagflation, and deleveraging out of carry trade investments reduces aggregate demand.

    Avoidance of the risk trade, is turning Junk Bonds, JNK, lower. The Morgan Stanley Cyclical Index, ^CYC, is trading lower. Debased currencies are unable to support risk and growth.

    M3 Financial Analysis presents a chart of commodities, and the Euro. An inquiring mind asks will a continuing falling Euro, FXE, pull commodities, DBC, lower? And an inquiring mind asks will continuing falling Commodity Currencies, CCX, pull Commodities, DBC, lower? The chart of Commodities relative to Commodity Currencies, … DBC:CCX … shows an Elliott Wave 2 up, and ready to enter an Elliott Wave 3 Down. All currencies are falling lower into the pit of financial abandon together, and will be deleveraging commodities lower. Unfortunately, people will be INCREASINGLY be able to afford less commodities with their cheapend currencies.