The chorus singing of the need to separate commodities from broader views of market movement appears to be growing again. It’s possible to separate this into “supply constraint” and “Asia rising camps”, but in general it is recognized that both come into play. Supply constraint singers realize that the mineral commodities sector was under capitalized for a long period beginning about 1980. Asia rising tunes increasingly look back to the last decade to recognize that mineral prices were already tied to Asian growth in the 1990s. Our contention that a “decoupling” of metal prices from western markets has taken place stems from Asian growth, while our expectation of continued historically high prices is based on supply constraint. The two need to be weighed against a second post-Crunch decoupling to gauge timing.
Germany, France and Japan all recorded small but positive economic growth in Q2. Canadian housing sales in July were the highest ever recorded. While we do view these stats as part of a post-Crunch bounce partly related to government generated stimuli, the early awakeners are hardly random. Germany and Japan have high personal savings rates. France and Canada (especially the latter) have banking systems that were largely unscathed by the Debt Crunch. A large portion of the Canadian housing turn-over is first time buyers who had been scared away from the market but now feel they should take advantage of low interest rates. These are the industrialized economies that are best placed to recover from the impacts of a credit squeeze because they have cash or available credit, though Japan and Germany need to work on domestic consumption. Continue reading ‘Lending Reversals, East and West’ »