The following editorial was published in Price Perceptions issue #1429A on March 12, 2011

Shift to Caution...

Many commodity markets fell sharply this week as investor attitudes began to shift from bullish to cautious. The following were primary reasons for the shift to caution...

  • The civil war in Libya worsened this week and global leaders have not been able to agree on what, if anything, should be done to curb the violence.

  • The Saudi government is resisting demonstrations for greater freedom and clashes occurred late this week.

  • Gasoline prices advanced to the second highest level in history this week and threaten to curb the global economic recovery.

  • China, considered the engine of world growth, reported a trade deficit for the month of February. The deficit was a result of slowing exports and the high cost of imported fuel and other commodities. A slowdown in China’s economic expansion could take the edge off expectations of ever expanding commodity demand.

  • Serious economic problems in Japan and Europe continue and high energy prices could easily lead to slower than expected global growth in these areas.

  • The US Congress and many state and local governments are now stressing budget restraint rather than anti-recession policies.

  • The Federal Reserve has already utilized the bulk of their tools to fight the great recession and have little dry powder left to head off another economic downturn.

    With fiscal restraint now engulfing Europe and the US, as well as monetary tightening in many Asian nations to combat inflation, it is possible markets are beginning to consider the possibility global recovery may be near its peak.

    However, because recovery may be near a peak does not necessarily mean a return to recession... Instead, a slower rate of growth is more likely. We have said many times over the years that demand is fickle and illusive... It comes in spurts and can disappear at a moments notice.

    Demand for grain futures suddenly disappeared this week as world events reduced risk propensity. However, unless these outside events cripple the global economy, demand can be expected to return in weeks to come. We believe a period of price consolidation will be necessary before markets regain a more positive psychology.

    Bill Gary
    President/Editor
    CIS, Inc.


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