Noront Resources

Interesting!

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Some veteran market trend trackers like to point out - often with a certain amount of glee - that equities are smack dab in the middle of a "secular" bear market, a long-term, flat-to-down cycle that typically runs a retirement savings-crushing 18 years.

But few people talk about the secular bull market that is in full charge in another asset class, despite a recent cyclical slump that might suggest otherwise.

"We believe that the commodity market entered a secular bull market right around the same time that the equity market entered its secular bear market - a tad later, actually, in November, 2001," David Rosenberg, chief economist at Gluskin Sheff + Associates Inc., said in a report this week.

YOU CALL THOSE LOWS?

For anyone who noticed the 40-per-cent pasting suffered by the Reuters Jefferies CRB index - the global benchmark for commodity prices - in the past year, such a rosy assertion might seem a bit hard to swallow. But by looking at the ups and downs of commodity prices in shorter economic cycles embedded within the longer-term trend, Mr. Rosenberg found evidence that the secular bull is firmly in place.

"What really caught our eye this time around was that during the vicious selloff in commodities last year, the price of virtually every commodity bottomed at a higher price than during any other recession in the past," he said.

The bottom for the CRB index was roughly in line with the peaks during the previous economic cycle - a trait last seen in the commodity secular bull market that ran from the mid-1960s to the early 1980s. (That commodity secular bull also coincided with a secular bear market for equities.)

"The fact that commodities bottomed at their highest cyclical troughs ever, in the face of the most severe global recession in 70 years, tells us what the floor is, at the very least," he said.

LOOKS LIKE 1987

Mr. Rosenberg said the secular bull in commodities is supported by a long-term shift in the market fundamentals: Supplies have tightened, while the economic expansion of emerging markets has accelerated demand. This continuing story should provide the underlying fuel for the commodity bull to resume its charge for much of the next decade.

"The way to view the 40-per-cent slide in the commodity complex last year is the same way that the [stock market] crash of October, 1987, should be treated," he said. "At the time, it felt like the end of the world, but in fact, it was a deep correction from a bubble that formed in the spring and summer of that year. Who knew at that time that this was the fifth year of what was turning out to be, as we now know in perfect hindsight, a classic 18-year secular bull market?"