Commodity prices soared from 2001 to 2008, creating what many called a super-cycle for the asset class.
But now the tide is turning, and the economic implications are dire, says
Ed Yardeni, president of Yardeni Research.
"The bubble that's bursting now is the commodity super-cycle," he writes in his daily commentary, provided to Moneynews.
The Dow Jones-UBS Commodity Index has dropped 7.6 percent in the past two years. U.S. crude oil prices hit a two-year low Thursday, dipping below $80 a barrel, and gold prices touched their low for the year Oct. 6.
"The problem is that the global economy stopped booming around 2011, when the eurozone started falling into a recession and China began to slow," Yardeni explains.
"Too much capacity was expanded to meet the demands of a booming global economy led by China," he adds.
"When the tide went out, miners and drillers were stuck with lots of excess capacity. Falling commodity prices are now depressing the economies of all the major commodity exporters including Australia, Canada, Brazil and South Africa."
And now the trouble has intensified. "The drop in oil prices in combination with the drop in industrial commodity prices is spooking investors," Yardeni writes. "These drops suggest that the global economy is heading toward a recession."
Many analysts have reduced their global growth forecasts in recent days. As for the U.S. economy, Ted Wieseman, an economist at Morgan Stanley, trimmed his third-quarter GDP growth estimate to 3.1 percent from 3.4 after news that retail sales fell 0.3 percent in September.
"Consumers have turned more cautious," he tells
Reuters.
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