Titans of Wall Street: March 2011

Jim Rogers always talks about the true price of any commodity is all relative. And the best way to check the price of them is not with the US dollar as it has been devalued, but with Gold. Gold is the true currency of the world and the only form of currency that cannot be created out of thin air. To understand more of the big picture, we need to see everything in gold, not fiat money. So below are the 20 year charts for the big commodities.

You will notice that commodities have had a huge run up in real value in the past 2 decades...Prior to this decade, I can confidently attribute that to demand and the growth of the world economy and improved conditions in some major countries. But the recent rise i feel is due more to the debasing of our currency.

Most noticeably is the difference between the dollar denominated chart of SPX vs its gold denominated one. These charts illustrates the true picture of the US economy. We have had a huge run up without any real growth. No new jobs are being created and companies are not worth any more now than 10 years ago. They are actually worth way less. But we don't see this as all the media and FED care about is how many dollars these companies are worth, not how much real commodities or gold it can buy...

I believe whole-heartedly that the worst is not over for stocks and the price of commodities. Commodities were supposed to rise just like gold in the past decade but haven't. Like gold, commodities are a safe haven for investors and used as protection from inflation. It only makes sense that if the currency you use to buy commodities drops that the amount of that currency needed to buy that commodity increases at a similar factor. But that is not what we saw. There was actually a big drop in the price of commodities. Much of that was probably due to the bubble that burst in 2008 food crisis but also due to the slowdown in America and China's consumption due to the recession. But that selloff was overdone. Investors forgot all about the weakening of the dollar. Now, as stocks have had their huge runup, investors are looking elsewhere and finally realizing that commodities are way undervalued.

The price of commodities when denominated in gold at a "normal time" free of fear and inflation only affected by a supply and demand. As world demand grows for commodities, the price will rise for the time being until supply can meet that demand. And when demand is low, supply continues to fall until it meets demand. Supply and demand is always trying to be at equilibrium and the price of the product ensures this happens. This would mean that all the charts of all commodities should move within a channel normally. The movement should be smooth unless we have huge supply disruptions.

But in the real world, the world we live in today, the devaluing of the dollar plays a critical role in the price of commodities. It causes an artificial rise in the price of the commodity without raising supply nor demand. all it does is shift equillibrium point higher up on the dollar scale. When shown vs gold, the commodities charts will remain calm as its standardized to show mainly the supply and demand picture. But when shown on a dollar denominated chart, we will see a huge rise in commodities prices.

The trick is to see how much these commodities are really worth vs gold. I think copper illustrates the world economy the best. Copper is used in most technological products. It is consumed in huge levels in china now and represents the true production of products in the world. When copper rises, world production is healthy and when it falls, production is slow. This can be seen as how 5 years ago on the Copper/Gold when every country in the world was doing well and producing a lot, the price was at an all time high....then we had the recession and the price of copper plummeted. But now China is producing again and also is some parts of Europe and America and copper is rising. But does the economy feel as strong as it was 5 years ago? Ask anyone and they will say no. So why then are we at all time highs in copper prices denominated in dollars? Well...that is not supply and demand...so it must be factors related to the dollar such as inflation. What is really happening with copper is that demand has risen from the low but we are still way below the highs of production set 5 years ago. Until we get back to that level, the world economy is still in a recession. And until SPX breaks its downtrend (SPX/gold chart), america is still in a recession. In fact, we have been in a recession since clinton left office. We just have been fooled as our blinders were on and could not see that the rallies since 2000 were all artificially created by a weakened dollar.

Summation Points

the cost of gas, food, and clothing does not cost more now than 5 years ago...it just costs more to currencies holding crap currency like America.
our government is making us poorer by decreasing our purchasing power in the world market
fiat money gave us 2 huge rallies since 2000
America has been less productive in the last 10 years and continues to decline

Gold 20 yrs

SPX 20 yr

SPX / gold

Copper

Copper / gold

Corn

Corn / gold

Crude

Crude / gold

Oats

Oats / gold

Silver

Silver / gold

Soybeans

Soybeans / gold

Wheat

What / gold

Info on Charts:

using Continually Adjusted Futures Contracts
graphs are the commodity future contact divided by the gold future contract
log charts
5 year weekly charts

My Conclusions from the Charts

we are not at all time high prices in commodities
these charts are not fully accurate on the true price of commodities because the price of gold is inflated due to fear
this chart is still a better representation than just the price of the commodities vs the dollar as the dollar has been depreciated and inflation is not a factor in the charts
commodity prices have risen a lot in the past year, but not nearly as much as it seems
we are far off from the highs of 2008 food crisis levels
the world has been lucky with the price of commodities decline in past few years but prices are finally starting to go back to normal levels
the price of commodities can rise much much more
cotton, silver, and soybeans are really at all time highs

Gold Futures