Click to enlarge:


Source: Bianco Research L.L.C.
Charts Of The Week, April 11, 2012

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One of my favorite long term charts looking at the cost of commodities spanning over the past 2 and half centuries . . .

Category: Consumer Spending

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

47 Responses to “CRB Index Back to 1749 – Present”

  1. cgercke says:

    Funny how this takes off about when the US went off the gold standard.

  2. JimRino says:

    What happened in 1968 forward to increase the Volatility of Commodities?
    Any rule change in the commodities markets?
    Like Hedge Funds being able to trade in commodities they don’t actually use?

  3. dead hobo says:

    I really enjoy charts that conflate the demand from 7 billion people for commodities with the perhaps 20% of the price that is excessive due to trading innovations. Like I said, lots of people on wall street are dumb beyond belief when it comes to commodities. It’s like their brain shuts off and everyone is named Honest John.

  4. wcvarones says:

    Wow. It went nuts exactly when Nixon killed the gold standard.

    What an odd coincidence.

    ~~~

    BR: Your chart reading skills are somewhat suspect.

    It looks to have begun going vertical in 1968 — Nixon ended the Gold standard in 1971, but there were numerous other NIXON SHOCK factors. Plus the impact of the oil embargo.

    You are grossly oversimplifying a complex issue

  5. techy says:

    OffTopic:

    I noticed that AAPL has fallen a lot without any news, I have a question for Technical Analysis fans/experts: was it possible to anticipate this reversal based on TA?

    ~~~

    BR: Could be this Apple Falls for Fifth Day on Concern Carriers May Cut Subsidies
    or this
    Apple’s influence on Nasdaq-100 index slashed by 40%

  6. …featuring a 220-year consolidation…

  7. dead hobo says:

    PS:

    How does that incisive and informative chart report firewood and coal, and perhaps whale blubber, used for cooking and heating back in the first century of the the dates covered? I’m serious. How does this chart compare in any way, shape, or form with today? Obviously, it doesn’t.

  8. PeterR says:

    Jeesh BR, to quote you just above: “You are grossly oversimplifying a complex issue.”
    And this chart doesn’t? 250 years of data compressed into one chart. What controls/comparatives/etc. are in-place regarding inflation, price of gold, world events, fall of Communism (whatever that means), and so forth? So, what in YOUR personal view is the take-away of the spike up around 1968 to 1970? That was around the year I graduated from college, therefore commodity prices went up? Post-Hoc, Ergo Propter Hoc? Hot today, right?

    PS — Did our monitoring/measuring/analyzing of old data improve/change so much around 1970, that the spike in the chart above is OUR creation (illusion?)? Again BR what is YOUR take-away on this chart? Any chance of plotting the value of total worldwide equity market value against this?

    ~~~

    BR: Dear boy: You are confusing very different issues.

    There is an enormous difference between a relatively simple price time series such as the above chart, and an oversimplfication of a complex multivariate causation argument made by. wcvarones

    May I suggest you read Intelligence Hierarchy: Data, Information, Knowledge, Wisdom. You may find it enlightening

  9. jsmfr says:

    A log scale would be quite useful here. Very misleading chart without one.

  10. Theravadin says:

    What is really interesting about this series is that it is not inflation adjusted. The big picture here is that technological advances overcame all other factors to give declining real values of commodities until about 1968. After 1968, a whole new regime took over, where technology no longer trumped other economics. That’s an interesting break point, historically.

  11. Global Eyes says:

    I agree with the 2 bloggers who connect today’s chart with Nixon’s gold decision and inflation’s growth since my birth.

  12. NoKidding says:

    Where are the “revert to mean” fanatics for this data series?

  13. Frilton Miedman says:

    Not to disappoint the Guns-Gold-God crowd or Soldier of Fortune/ NRA enthusiasts, but the mid-century extreme rate of increase coincides with the same extreme rate of global population increase.

  14. VennData says:

    I dunno, nothing about papayas in Papua New Guinea. They were on the papaya standard for centuries and had zero inflation. FYI the cannibal meme is just the liberal media being anti-religion.

  15. A starter colony of bacteria in a petri dish full of agar… if bacteria were adept at assessing cost…

    Would find the initial price very low: lots of agar; not much demand.

    As the colony grows… agar depletes.

    The ‘cost’ of the agar will rise precipitously as the colony reaches the edge of the dish.

    At this point monetary theories will be of little help.

    What is needed is more agar!

    Now the analogy is imperfect… costs of essential commodities have many factors influencing them and our ‘wall of the dish’ may not be as fixed or immovable.

    But math is inexorable… and growth within finite systems cannot continue indefinitely.

    And our models actually penalize the wise use of resources, modesty in consumption and an intelligent citizenry.

    (WHAT do Chinese leadership and Corporate advertising have in common? NEITHER want the receivers of their messages to think independently or too much.)

    I don’t see a lot indicating were going to do any better than bacteria in a petri dish… but I keep hoping.

  16. limulus polyphemus says:

    A long tem chart like this is much more useful when shown with a log scale – just sayin

  17. techy says:

    Thanks Barry. But the Nasdaq rebalance news is from last year.

    But the second link does explain the rationale for this correction.
    I have a conspiracy theory: I believe that best information is always leaked by insiders which are available to the few connected big money, this is what is happening in AAPL 10 days before earnings. Insiders know that AAPL is not going to beat the huge expectations set on apple this quarter.

    Sorry for this OffTopic discussion.

  18. Petey Wheatstraw says:

    I wonder what happened around 1970?

    Cause and effect is so unprovable, it is less likely to actually exist than Bigfoot, global warming, or evolution.

    Never mind.

  19. nofoulsontheplayground says:

    These charts show how prior to 1970, shortages of commodities in times of war caused prices to spike. The exception appears to be the move up out of the 1933 lows, which was kick-started by the USD devaluation.

    Speaking of charts, has anyone noticed the proliferation of Head and Shoulders tops on individual equity daily charts lately? Just off the top of my head there’s ORCL, GS, DIA, SMH, CSCO, MSFT could have a nested H&S top, the XBD, C, and many others. At the 2010 and 2011 highs we didn’t have this many H&S tops. Furthermore, we’ve seen some issues already have their formations break to the norm (down), so it seems this bears watching over the next couple of weeks.

  20. gman says:

    Now overlay life expectancy and standards of living…

    or don’t if you are a gold bug…”all that matters is price stability of raw materials”

  21. pseudboy says:

    Is this chart available in log scale?

  22. Petey Wheatstraw says:

    BR says,

    “It looks to have begun going vertical in 1968 . . .”

    Maybe it’s my monitor, but that’s not what the chart I’m lookin’ at says.

  23. gman says:

    I would love to live like a caveman or a peasant from the middle ages..for the price stability..

    ~~~

    BR: Also, no worries about saving for retirement

  24. cgercke says:

    Well, I’m hurt that BR thinks I’m a midget brain (Ok, he said “grossly oversimplifying”, not “midget-brain”, but still). The good news is that his information hierarchy stuff is cool.

    My pet theory is that in order to get giant moves, you need at least three major things to happen independently but simultaneously. So, we get Nixon shocks, the math of overconsumption of finite resources, and…is there a third from this thread…?

  25. TR says:

    As a kid I remember 1968-1980 as the inflationary period from hell. My father was small biz , had pricing power and low labor costs. The trickle-down effect wasn’t reflected in his actions or in society as a whole. This was the baby boom come of age. Thank god for sex, drugs and rock n roll!

  26. dougc says:

    1968 was when wage inflation and commodity inflation took off, gold went from 35$ to 800$, gas went from 25 cents to 1,75$, cpi went from 5% to 15 %. Doubt that gold standard caused oil embargo.

  27. TR says:

    Is the graph a reflection of monetary deflate and reflate?

  28. 873450 says:

    Funny – It wasn’t the gold standard. It was Nixon.

    I will grossly oversimplify and say it’s population growth, the oil industry and television.

    A billion chinese were manufacturing air conditioners, televisions and cars for American consumers. Now they must have them too. Everybody must have air conditioning. There is no going back.

  29. tagyoureit says:

    Post WWII Chemical Farming & Oil.

  30. tagyoureit says:

    I wanted to add, yields are way up, but so is chemical use, not just in farming, but metals & energy extraction.

  31. James Cameron says:

    “It looks to have begun going vertical in 1968 . . .”

    Maybe it’s my monitor, but that’s not what the chart I’m lookin’ at says.

    —-

    Not to belabor, but the placement of the “event” dates in blue can be a little misleading. Many are to the right of where they should be using the dates on the bottom axis as a guide. See 1897, 1920, 1933 (especially), 1951 and . . . 1968. This:

    goo.gl/tO3vV

    illustrates for 1968. The graph begins to go vertical sometime right around 1973 (or so).

  32. PeterR says:

    Barry,

    Your salutation above, in reply to my 12:39 comment, was “Dear boy.”

    Is this an accurate posting of a comment from Barry Ritholtz, or is there a flaw in the system some place here?

    Hope you meet you in WHB at some point.

  33. Petey Wheatstraw says:

    873450:

    Are the first and third paragraphs of your chart related? I don’t think a billion Chinese were making TVs, air conditioners, or cars for Americans when Nixion was Prez and Mao was Chairman.

  34. Futuredome says:

    Wheatstraw, no they weren’t, but the global boom of 68-72(outside the weak recession in the west in 1970) always gets overlooked. It was the first time in global history the whole world was booming at the same time while global populations surges.

    China was a big plus behind the boom as they left the “cultural revolution” behind them.

    The inflation of 68-80 was all in goods mostly, not in services. The exact opposite of today, with high inflation in services and deflation in goods.

  35. wcvarones says:

    I’m not grossly oversimplifying a complex issue. I’m simply pointing out that the numerator in the ratio $/CRB has a pretty big impact on the value of the ratio. Commodities aren’t priced relative to nothing.

    And as for mis-reading the chart, I think your chart labels may not be as precisely placed as you think they are. Oil didn’t go vertical until 1973-74, for example.

    http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp

    Obviously there are numerous factors in the historical prices of a basket of goods. But to deny that the value of the underlying currency is a primary factor is delusional.

  36. Frilton Miedman says:

    Buy GOLD!
    Call your NRA representative for the most recommended firearm to defend your gold,
    Then … tune in to your local spiritual adviser for further guidance on where to mail the check for the rest of your money,

    The end is near, the end is near.

  37. machinehead says:

    Theravadin (at 12:52 pm) is right. With inflation adjustment, the 1999 low is in the same ballpark as the 1933 low. In other words, it was a MAJOR secular low in commodities.

    Jim Bianco is a brilliant researcher, and I always appreciate seeing his work here. But I’m baffled why Jim would omit inflation adjustment, or even a semilog scale, from a multi-century chart. Must’ve been an off day.

    Global Financial Data has simulated a CRB total return index back to the early 20th century — that is, including interest earned on T-bills put up as collateral on an unleveraged, diversified commodity futures pool. Now THAT would be an interesting chart, especially when compared to stock and bond total returns. If anyone can do such a chart, Jim Bianco can.

  38. constantnormal says:

    If one keeps in mind that this is a COMMODITIES index, and thinks hard about what commodities might have gone bonkers during the spikes, one can come up with a tentative list of possible causes for the spikes … here’s my take at it:

    1779-1781 — possibly tumult around the newby nation’s currency. Continental dollar replaced by Alexander Hamilton’s US dollar.

    ~1815 — War of 1812, and concerns about the future of the US?

    1864 — the Civil War … more fears about the US currency, along with the usual & customary disruptions of trade during times of war

    1917-1920 — WWI

    late 1930s thru 1951 — WWII, Korean War?

    1968 — not sure here, we had the Viet Nam war, insane fiscal policies, the build=up of pressures on the USD that led to the break with the gold standard in 1971, could have been any/all.

    1980 — the collapse of the S&L industry, runaway inflation

    2006 — speculators hijacking oil prices?

    2008 — banking & housing industries enter into mutual suicide pact

    Just my two cents … in most of the spikes, the commodity that has gone bonkers seems to have been the US dollar.

  39. 873450 says:

    @ Petey Wheatstraw Says:
    873450: Are the first and third paragraphs of your chart related?

    Just joking, pointing out Nixon as coincidence in time and fixing blame to satisfy a pre-conceived bias rather than acknowledge powerful causation factors building up for decades. (Barney Frank caused the global financial crisis.)

    A joke, but a theme that can be developed and run with.
    - Mao’s 100-year plan involved tricking Nixon into destroying and bankrupting the American middle class in less than 50 years.

  40. derekce says:

    Looks like all the spikes were related to wars. Revolutionary War, War of 1812, Civil War, WW1 and WW2, Vietnam and now the War on Terror, (Iraq, Afghanistan and the rest). Looking on the bright side, Iraq is over and Afghanistan looks to be winding down.

  41. James Cameron says:

    Oil didn’t go vertical until 1973-74, for example.

    http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp

    —-

    And neither did the CRB chart until then . . . the 1968 label is not correct as even a casual look should make apparent.

  42. TR says:

    So is this a deflate/reflate of the dollar for whatever goings on or fiscal reasons?

  43. formerlawyer says:

    Does the most recent spike >1970 have to do with OPEC and peak oil? Or is it just a bubble?

    http://www.thebubblebubble.com/commodities-bubble/

  44. dead hobo says:

    http://www.jefferies.com/cositemgr.pl/html/ProductsServices/SalesTrading/Commodities/ReutersJefferiesCRB/index.shtml

    excerpt from jefferies:

    The history of the Thomson Reuters/Jefferies CRB Index dates back to 1957, when the Commodity Research Bureau constructed an index comprised of 28 commodities that made its inaugural appearance in the 1958 CRB Commodity Year Book.

    question:

    Where did the prior 2 centuries of data come from since the authors of the chart state the first creation followed by many revisions was in 1957?

    This chart is another excellent example of how wall street goes brain dead when commodities are involved. The chart appears, to me, to be nothing but bullshit and maybe an April Fools day joke that somebody accidentally took seriously.

  45. cognos says:

    dead hobo:

    C’mon man! whale blubber is DAMN expensive today.

    Agree 100%… the “very long term” is just the same as the “completely irrelevant and incomparable”.

    Another factor here is that commodity have become tiny in terms of the world consumption basket (right about in the 1960s). Once you start flying planes worldwide and launching rockets… basic commodities get $ expensive because they are a tiny 1-5% of wealthy consumption basket.

    Its like the price of cigarette… doesn’t really matter right?

  46. socaljoe says:

    Funny how much is in the eye of the beholder… I see sort term fluctuations in the price of comodidities but long term erosion in the value of paper money.

    I wouldn’t be surprised to see a downward trend for the entire period if the price data were inflation adjusted, which is what you would expect for the period in which large scale industrial resource extraction was introduced.

    For example, the real price of silver has declined from about $200/oz. in 1750 to $30/oz today.

    http://bigpicture.typepad.com/comments/2006/01/500_year_chart_.html

  47. ashpelham2 says:

    And being that this chart isn’t inflation adjusted, I think the real tale of the tape here is the unabashed volatility that exists now. We’ve had spikes in the past, but not spike, drop, spike, drop, spike, drop…This is a tell-tale sign of trading, of speculation. THAT is the complaint that I have. If oil is supposed to be at 100bbl, I can accept that. I can’t accept a 30% drop or increase as being evidence of a healthy capitalist market.