This is the S&P graphed against the CRY (Commodities) index. One would think if companies equity prices are up, they are making more money buying selling more product. And if they’re selling more product that should also be producing more product. And if their producing more products, they should be buying more commodities to make the products. However, as you can see in this graph, commodities prices have been steadily declining over the past 3 years. Also note the spread graph in green. I don’t think it’s a coincidence that the spread of the S&P over the CRY index spiked in mid-2000, mid-2007, and has not spiked to levels never seen before. How much longer can this relationship proceed. Either commodities prices need to spike because of the demand to produce, which we know is simply NOT the case, or stock prices must correct. A correction is coming and this is one of many metrics I believe demonstrates it’s overdue and severe.
Randy Woodward
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