Monday, February 06, 2006

A look at the CRB index

An article that is similar in focus to the David Morgan piece I posted yesterday. This one, by Scott Wright, is titled "21st Century Commodity Bull" . Wright takes a look at the price highs of the CRB index, where a nominal price breakout above the last cycle peak of 1980 has occured, and compares this with a chart of the index price in real terms (adjusted for CPI inflation).

I think the attempt to illustrate the value of these asset classes in "real terms" is a worthwhile endeavor. In judging the value of an asset or investment over time, measuring the purchasing power of the currency in which it is priced is an important consideration. I believe that Marc Faber and Jim Rogers have also made this point before; I recall Faber making a case for commodities a few years ago based on their low price in real terms. Let's see if I can dig up a link to document that... here we are. And here is the quote from that link:

"I may add that by 2001, commodity prices had been in a bear market for the last 25 years, and had reached in real terms (adjusted for inflation) the lowest level in the history of capitalism. In other words, even taking a negative view of the world's economic outlook, it would seem that the secular bear market in commodities, which began in 1980, has come to an end and that from here on we shall rather see higher than lower commodity prices."