Everyone has been talking about the Great Rotation into equities this year. With the recent stalling in prices, the fervor for this talk has declined, but there are other rotations within asset classes. In particular, there is a rotation in commodity behavior with the what seems like the end of the super cycle.
During the commodity super cycle, prices were macro-driven by the movement in global growth.The surge in China growth pushed commodity prices higher but with the Great Recession, there has been flattening in commodity momentum. The market has moved from being macro-driven to one that is more localized. The cross correlations in commodities are at the lowest in years. The commodity rotation has moved to behavior that emphasizes commodity specific behavior.
Additionally, the dampening of inflation expectations has reduced the demand for precious metals which has been a strong driver in commodities. The idea that commodities are needed as a hedge against the next round of inflation has fallen from favor which has placed more emphasis on those markets which have inventory shortages and not a desire to hold real assets.
The conclusion is that investors have to "think local" to make money in commodities
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