Well we were either early, or wrong, on our persistent warnings that the return of deflation was imminent. And experienced investors and traders know that you should never fight the tape!
The tape kicked off 2011 with a definitive message that the bulls – and/or the inflationists – are still in the driver’s seat. Crude oil – you know, the black goo that powers our fossil fuel based global economy – broke out to its highest levels since 2008 today!
Crude oil either believes the global economy is fine – or that QE funds need to go somewhere. Either way, it’s a bull market in the goo! (Source: StockCharts.com)
Less noted in the headlines, but just as significant, was the breakout of Cummins – a global stalwart that sells industrial everythings to everyone across the world.
As our friend Brian Hunt astutely pointed out previously, if Cummins is doing well, that means everything else probably is too.
Longtime readers know we monitor shares of Cummins (CMI) for a quick read on the global economy. Cummins is the world’s largest independent maker of high-horsepower diesel engines… the kind that power bulldozers, cranes, heavy trucks, mining shovels, and electrical generators. This makes its share price rise and fall with the pace of economic and infrastructure activity.
For example, we noted the stock’s big breakdown in January 2008, which came well before the economic crisis. Last week, however, Cummins wasn’t breaking down… it was breaking out… to an amazing all-time high.
Some investors are worried the world will enter a “double dip” recession soon. There are valid reasons for these concerns. But one has to be mindful of Cummins’ new price strength (and as I noted last week, copper’s new price strength) before getting too gloomy on things.
While Cummins’ strength isn’t enough for us to expect an economic boom, it is enough for us to say, “Yes, there are things worth worrying about. But when you look at this super strength, you have to say the glass is half full – maybe even three-fifths.”
Looks like that glass is powering past the three-fifths mark!