Diffusion Index

Much of the upward price movement in commodity prices, as measured in U.S. dollars, is the result of the weak dollar. A weaker dollar has an inflationary impact on U.S. prices.

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While this higher reading is still far from signaling a significant inflation increase, we do believe that mild upward pressures are building.

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While the higher Commodity Diffusion Index reading is still far from signaling a significant inflation increase, we do believe that mild upward pressures are building.

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Corporate Crime Wave—Not a new era, but exaggerated by  length of recent bull market….Why and how some real reform must become reality. Also, why the Federal Deficit is likely to exceed $200 billion.

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The Commodity Diffusion Index is an outstanding inflation monitor and has also been a good gauge of future market performance.

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Favorite stock groups now “inflation and interest rate proof”?

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Inflation is on the rise…normal business cycle inflation, not the rebirth of new secular inflation. Also, the stampede of the lambs…the powerbase for the stock market has moved from Wall Street to Main Street.

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Leuthold Group’s Commodity Diffusion Index sell signal now looks like a false alarm. The 1996 budget deficit gap is closing at a faster rate than even Clinton’s administration expected. Have Republicans misread what the majority of Americans want from their political leaders?

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Weight of the evidence bond market discipline shifted to negative from neutral this month.

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Diffusion Index breaks above its 70% danger zone, signaling higher commodity inflation ahead?

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The tool has functioned as a good lead indicator of changes in inflation momentum. When the reading is moving up it is an inflation acceleration alert and a move above 70% is usually cause for a general alarm. On the other hand, readings below 50% are a comfort zone.

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Bonds moved higher in August but did not make new highs. However, it is only a matter of time. Most of our inflation work is still cool, but this month we present one of our tools that is mildly disturbing. The commodity spot price diffusion index seems to be on the rise, although not yet in negative territory.

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At this point there is no indication inflation may be about to accelerate. Some may recall that in the early spring of 1984, this work led us to conclude that 1984 inflation might be a lot lower than most then thought at the time. This section also includes comments on the possibilities of deflation and what might be expected if it does occur. It probably would not be the disaster some seem to think.

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Our weekly work comparing prices of 94 commodities with levels 12 months previous seems to function quite well as a stock market timing device and is also helpful at times with the bond market. At the end of July, it registered a “buy signal” for both. Take a look at this section and see how this has worked out 1973 to date.

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The one-year diffusion index of 90 commodities is indicating a resurgence of inflation may be right around the corner. We think it is wrong. Our other tools don’t confirm. However, the past record of this tool cannot be ignored.

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