Jerusalem, Israel

From a post-2008 high of more than $320, lumber prices as measured by the EOD Index are now in a free fall. Spot lumber prices have now declined a cumulative 36% since peaking in April – technically defined as a deep bear market (see chart below).

Along with most other raw materials over the past several weeks, lumber joins a growing chorus of weak price trends. At the same time as lumber has weakened, other commodities that are heavily linked to the global economic cycle have also rolled over; copper, steel, aluminum and most industrial metals are significantly below their recent highs.

As I mentioned yesterday, the Baltic Dry Index, a popular measure tracking global bulk shipping rates, has also rolled over (see chart below). This index should be strong if the world economy is solidly expanding; the picture here might be bearish if the decline extends past its 200-day moving average and violates important short-term support.

Increasingly, as cyclical benchmarks struggle to maintain technical strength, other indexes tied to an economic slowdown have gained upside momentum. That's despite yesterday's claim by the International Monetary Fund (IMF) that "global economic growth remains strong."

I'm not sure what they smoke at the IMF but it would seem logical to me that we still don't know the economic impact and residual fallout that's still underway in Europe. Germany alone can't carry a manufacturing recovery; a spreading sovereign debt crisis will continue to inflict uncertainty across Europe's weaker periphery ultimately leading to a default, possibly several.

 The only good thing about a plunging EUR is that Europe is now more export competitive and that should benefit Germany enormously. Yet that trade advantage will be offset by rising debt levels as real rates remain slightly positive or flat in most European economies – some are even negative as deflation digs deeper (Ireland, Spain). China alone won't sustain a strong Germany economic rebound.