Traditional wisdom tells us that when the money supply expands the price of commodities rises. Today Robert Prechter takes a look at what has actually happened to commodity prices since 2008 during a period when theoretically the FED has been pumping up the money supply. ~Tim McMahon, editor
Commodities Falling Despite QE: What Does That Mean?
Robert Prechter: “Charts tell the truth. Let’s look at some charts.”
By Elliott Wave International
During QE3, the latest round of the Fed’s quantitative easing, the stock market rose. We all know that.
But did you also know that commodities fell?
That’s right: QE3 had zero effect on commodities — or maybe even a negative effect. In fact, an unbiased observer of the trend might conclude that the Fed drove commodity prices down.
That, of course, would be heresy to investors who believe that the Fed’s actions have been inflating all financial markets.
What should you make of the fact that commodities have failed to respond to the massive, historic, unprecedented central-bank stimulus? We see it as a red flag.
What’s more, you may be surprised to know that not one of the Fed’s stimulus programs — QE1, QE2 and QE3 — pushed up commodity prices.
As Robert Prechter, the president of Elliott Wave International, wrote in his November 2013 Elliott Wave Theorist, “Charts tell the truth. Let’s look at some charts.” These four charts and analysis that he published in May, July, and November 2013 tell the story:
(Robert Prechter, July 2013 Elliott Wave Theorist)
The CRB index of commodities has been losing ground for more than two years, as shown in Figure 3. Notice the four short arrows on the chart. Based on their positions, you might think they would mark the timing of accurate sell signals generated by a secret indicator. But there’s no secret indicator. These happen to be the times at which the Fed launched its inflationary QE programs!
Investors almost universally take news at face value rather than [Read more...]