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Usually, the commodities asset class is considered being inversely correlated with other asset classes, due to its nature of an input for manufacturing (if the prices of commodities go down, the manufacturers can produce for less, and have a larger profit, and vice versa).

Therefore, why during the stock market crash of 2008, the commodities also went down, by far? What happened macro-economically to stop this inverse correlation from working?

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    $\begingroup$ Seems like this would be better suited to economics.se - money.se is for questions that are directly relevant to your personal finances. $\endgroup$ – Ganesh Sittampalam May 25 '15 at 20:49
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The problem in your question is the "and vice versa".

To give a very simplistic view, the problem in the 2008 crisis was not on production side - companies had enough to produce, but no-one to sell to. Given this, excess commodities found no buyers, even as the price lowers. The inverse correlation of stocks and commodities supposes full capital use, which is not the case during the 2008 crisis.

Globally, the correlation between commodities and other stocks is around 0, though during full capital use periods it does tend to be negative, there is usually a positive correlation during crisis.

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  • $\begingroup$ companies had enough to produce, but no-one to sell to. Many economists agree on that, but I'm not sure there is a consensus on this yet. After all, it started with a global financial crises that reduced firms' ability at getting credit. Not saying it was no demand shock, but the financial crises (potentially) affected both supply and demand. $\endgroup$ – FooBar May 26 '15 at 14:36
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    $\begingroup$ @FooBar yes, hence the "very simplistic view". The focus on commodities (the demand for brent was never so low as in 2009 in a recent past) rather than capital makes me feel right about it though. Just look at capacity vs production in fields such as the automotive sector during the crisis. I'm not talking about the reasons for 2008 crisis though here. The fact that the crisis was or not a demand shock is not needed to say it did imply a demand shock, at least as a second stage. $\endgroup$ – VicAche May 26 '15 at 14:41

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