CRB Commodities Index Monthly Chart; Deflation

The CRB Reuters/Jefferies Commodities Index crashes this year. It's light's out for commodities. Do you know what you call the chart above? Deflation. That is what you call it, deflation.

Over the last few years, the United States has been in a disinflationary and deflationary world. Yinz remember everyone touting inflation a few years back but that was not occurring--disinflation and deflation was occurring. These folks now say inflation is nowhere in sight and will not appear for a couple years forward. When folks that were wrong for many years finally throw in the towel saying that inflation will not occur, that is when the radar goes up and the long three-decade bond rally is likely in its final stage of bottoming (notes and bonds are well bid for 30+ years sending yields lower). As the years progress, inflation will arrive at some point and yields will be climbing as investors shun Treasuries sending prices lower. But this is not now. Disinflation and deflation is the bed we sleep in each night currently.

There is an ongoing battle between goods inflation and services inflation. The CRB above shows you the status of the US economy plain as day; deflation. However, most of the folks that sit in front of the television cameras, as well as financial managers and business and economic commentators, and the well-to-do viewers, are all making a good buck and see the world differently.

The folks that are upper middle class (the middle class was destroyed over the last five decades with most ending up as lower middle class now but a portion is upper middle class since they feed off the elite class's teat) own the new cars, don the fancy clothes, buy the latest gadgets, live in the McMansions and send their children to the finest schools and colleges. Therefore, when these folks comment on the disinflationary and deflationary posture of the United States, they roll their eyes and say how can that be? It does not compute in their world.

The upper middle class is experiencing higher prices via the utility bills for their McMansion that seem to increase annually, the mortgages, the school and college tuition and other costs for funding their children's educations, higher medical and insurance costs, and so forth. This creates that rift between inflationists and deflationists both arguing their cases but both left wondering who is right. As you see with the CRB above, the goods side is clearly in deflation; 100% no question. Also, yinz watch the electronic gadgets and other goods becoming cheaper each year. Smartphones are an electronic commodity nowadays. Computers are deflationary machines. The goods deflation reflects raw material prices which are lower and great for companies producing end products but lower for two troubling reasons; oversupply and lack of demand. That's not good.

The services side is important, but as Keystone has mentioned over the last couple years, the services inflation will likely come back to the goods deflation side rather than the goods deflation growing into goods inflation and joining the services inflation camp, and that is obviously happening now. Goods inflation falls into Hades and services will follow. People are laid off now so they are not seeking hair-cutting, grooming, travel and other services. Dentists are not allowed to open except for emergencies. Ditto the eyeglass and contact stores. At the same time, on the goods side, auto dealers are cutting automobile prices. Keystone receives offers and incentives daily to buy new vehicles but he is cheap and instead likes driving around in his brush-painted 1967 Rambler putty-mobile with the fenders that wave to you as he drives down the road. Joking aside, Americans better hope we do not fall into a deflationary spiral. Japan is in that quagmire for three decades and cannot get out.

If prices continue falling like stones, folks that planned to make a purchase of a key item will actually tend to keep waiting. This is human behavior. Even though they may have saved up for that car, or refrigerator, or house, or princess bedroom set for little Emma, once it is time to buy, and the item may even be offered at a discount, the customer balks. Humans ask themselves why should I buy it now if prices keep falling? You know, if I wait a week, I bet prices will be even cheaper. Yes, let's wait a week. Do you think you would exhibit this behavior. Of course you would. You are wired as a human. This creates a deflationary death spiral. Since people hold off on buying stuff waiting for even better prices and bargains, employees are canned. Companies must ax workers if they are not making the same number of widgets. Thus, these folks join the ranks of the unemployed and they cannot afford to buy anything. It is ugliness and especially not pretty since America is quickly aging demographically, like Japan. US small farmers will continue going bankrupt.

The blue sideways symmetrical triangle pattern played out. The vertical side is about 155 to 225 so that is a 70 difference. The failure from the lower rail of the triangle occurs at 175 so the target is 105. Price hits one hundo as a low so far this month.

The orange two-leg bear flag pattern also played out. The first leg from 310 to 160 is 150 points. The sideways consolidation flag forms during 2016-2019 and then the second down leg begins. Keystone likes to use that highest number in the consolidation zone even though it may not be at the end of the flag. Thus, from two hundo, take away 150, is a 50 target.

The moving average ribbon rolled over with the CRB below the 20-month MA below the 50-mth MA below the 100-mth, below the 150 below the 200 so a mean reversion higher will be in the cards very soon. CRB was rode hard and put away wet. The hallmark characteristic of the 1930's Great Depression was deflation. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.