A long-term downdraft in commodity prices and U.S. Treasury yields could continue due to ongoing deflationary forces, according to a new report by Bloomberg published Monday.

Although not mentioned in the report, the deflationary outlook could be a blow to some cryptocurrency investors who view bitcoin (BTC) as a hedge against inflation and currency debasement.  

  • “The fact that the world’s most significant commodity, crude oil, is the same price it was 16 years ago, despite unprecedented levels of monetary and fiscal stimulus, indicates entrenched deflationary forces,” according to the report, which was co-authored by Bloomberg Intelligence commodity strategist Mike McGlone and Carl Riccadonna, Bloomberg's chief U.S. economist.
  • Since the financial crisis, commodity prices have declined by about 60% versus U.S. M2 money supply growth while the S&P 500 has beaten M2 by about 40%, according to the report.
  • “The stock market tide needs to keep rising or deflation will prevail," the analysts wrote.
  • “Unless WTI (West Texas Intermediate Crude Oil) can sustain above $70 a barrel, there’s little to stop more of the same deflationary forces from commodities that marked a top in the U.S. Treasury 10-year yield of about 3% in 2014."
  • Bloomberg also noted similar bearish conditions for Brent crude oil to the 2018 price peak around $85 per barrel, which preceded bull markets in Treasury bonds and gold.  
  • Around the same time, bitcoin entered a bear market between December 2017 and January 2019.
Chart shows Commodities, gold and stocks relative to U.S. M2 money supply growth since 2008.
Source: Bloomberg Intelligence
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