Recently, many commodity prices have undergone parabolic increases leading
market participants to conclude that high inflation is on the horizon. However,
history suggests otherwise as parabolic price increases have always led to
parabolic price declines.
As shown below, in 2008, oil ascended to $150 in parabolic form. During that
time, peak oil, global growth, and easy money by the Federal Reserve were the
only talk on Wall Street. Of course, in hindsight, the surge in price was merely
the result of speculation. The collapse in the price of oil reinforced the
deflationary pressures already affecting the global economy, culminating in
a banking crisis just months after oil's peak. The story of oil demonstrates
that investors focus on inflation and growth as prices rise and on deflation
and recession as prices collapse.
The charts below of the Dow Jones in 1929, the Nikkei in the 1980s, gold in
the late 1970s, and the Nasdaq in the late 1990s tell the same story as oil's
2008 chart. In each case, rising prices captured the attention of the investment
community and encouraged optimistic claims about the future that proved entirely
wrong as prices imploded.
Today, surges in commodity prices are being attributed largely to the Federal
Reserve's second round of quantitative easing. We believe the parabolic increases
in commodities, such as silver and cotton, may be indicative of a deflationary
scare in the near future.
Silver - 25 Year Chart
Although silver has not surpassed its all time high, the long term chart shows
that previous parabolic increases have been followed by collapses.
Silver - 35 Year Chart
Cotton
By the summer of 2008, mortgage bonds were crashing, Bear Stearns had failed,
and Fannie and Freddie were in trouble, yet investors made the costly mistake
of positioning themselves to take advantage of loose monetary policy by the
Federal Reserve. Today, economic conditions are poor in the United States and
most of Europe. The economic backdrop should be the basis for investment decisions
yet investors are focused only on the Federal Reserve's easy money. Now that
several asset prices have experienced parabolic moves higher, which will likely
be followed by dramatic declines, deflationary fears that crippled markets
at various times during the past few years should soon reemerge.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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