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To: Keith Feral who wrote (78997)	6/3/2009 3:42:41 PM
From: Keith Feral	Respond to of 118717

I was thinking about the outperformance of commodities during late cycle moves. Commodities don't perform well during economic recoveries because interest rates begin to rapidly expand. The FED continues to deflate the relative value of commodities as the economy continues to expand. However, once we get to the later stages of an economic expansion, commodity prices don't get a whole lot of resistance from more interest rate hikes, especially if the yield curve begins to invert. Oil performed really well from 2006 to 2007 when the FED was on standby waiting for the economy to crash. They continued to do well as interest rates began to devalue the dollar from 2007 to 2008. It wasn't until last summer when the first wave of rate cuts had run their course that the dollar started to outperform oil. By that time, other countries began to relax their interest rate policies too, which made them much cheaper relative to the dollar. The return of interest rates won't help commodities when it happens. Still plenty of time to trade these things back and forth. Once the FED begins to increase rates, it will be a different game.