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Commodity prices have not collapsed

Lots of talk these days about how commodity prices have collapsed and are therefore predicting an imminent double-dip recession. Just to put that in perspective, here's an updated version of one of my favorite commodity price indices, the CRB Spot. Many of its components (see fine print in chart) are just basic industrial stuff, and not subject to futures-related speculation. Yes, the index has fallen since April, but it is only down 7% from its recent, all-time high. It is still up about 40% from its low at the end of 2008, and up 102% from its low in late 2001, which is when most commodities hit bottom—that works out to an annualized gain of almost 8%, which is not too shabby considering that the S&P 500 has not advanced at all during that same period. Just looking at the chart tells me that commodities have had a tremendous runup, and the recent correction is nothing more than that—just a correction. The message here continues to be that global demand is strong and prices are also being supported by easy money. This is a reflation signal, not a double-dip indicator.

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