The price of key industrial metals has fallen further over the last four months than occurred during the worst years of Great Depression between 1929 and 1933, according to research by Barclays Capital.
Kevin Norrish, Barclays' bank's commodities strategist, said the average fall in the price of copper, lead, and zinc has been roughly 60% since the peak in July 2008. All three metals were traded on the London Metal Exchange in the inter-war years so it is possible to make a comparison.
Prices for the three metals fell 40% from their highs in 1929 before touching bottom in 1933, with the bulk of the fall in 1930 as the slump spread worldwide. Lead and zinc have already lost more than they did in the 1930s, according to Norrish.
Copper was hit hardest during the Depression, despite the electrification drive in the US and the Soviet Union, falling 70% at one stage before creeping back in the mid-1930s. The reason was an 85% fall in U.S. construction, then the biggest user of the metal.
Barclays Capital said the broader equity markets are already discounting the sorts of "savage declines" in corporate profits that were last seen during the depression. Price to earnings (P/E) ratios are actually lower now than they were the early 1930s, with moves in credit spreads that suggest investors are anticipating depression-era levels of economic contraction.
And yet, Fed Chairman Bernanke, see yesterday's post, states that there is no comparison between our current economic condition and the 1930s depression. Will someone please give him a dose of economic reality.
Source: Barclays Capital
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