Tuesday, April 1, 2008

Gold Under $900; Oil Under $100. And: "Get Out of Commodities" - Barron's

Gold*: $891 -$30.50; Oil: $99.88 -$1.70 and the DJIA is up a couple hundred.**
From Barron's:

Commodities: Who's Behind the Boom?
CHINA, AS EVERYONE KNOWS, IS A BIG FORCE IN THE extraordinary boom in commodities. Its voracious appetite for everything from corn and wheat to copper and oil has helped push up U.S. commodities prices by some 50% over the past 12 months.
But China is by no means the whole story. Speculators -- including small investors -- are also playing a huge role. Thanks to the proliferation of mutual funds and exchange-traded funds tied to commodities indexes, speculative buying has gone way beyond anything the domestic commodities markets have ever seen. By one estimate, index funds right now account for 40% of all bullish bets on commodities. The speculative juices are even more plentiful -- nearly 60% of bullish positions -- if you count the bets placed by traditional commodity "pools."...

...WHAT MIGHT FINALLY TRIGGER THE bursting of the commodities bubble?
One possible trigger was cited in a Barron's interview with Carl Weinberg of High Frequency Economics, published last week. Weinberg anticipated a break "some time this year" in industrial commodities, including crude oil, copper and natural gas once there is news of "even the slightest slowdown in the Chinese economy," the country whose insatiable demand, together with that of India, has been a rallying cry of the bullish speculators. When industrial commodities prove vulnerable, speculative money could start fleeing agricultural commodities, also.
Société Générale analyst Albert Edwards goes much further. Based on his view that the "Commodity bubble is nonsense on stilts,">>>

**From our March 20 post, Markets: I Scream Triple Dip

...One possibility I've been toying with is a double recession following the credit crunch. The way this would play out in the stock market is a rotation out of commodities (but keep an eye on wheat) by the hot money back into equities with a run back toward the old highs on the S &P....

See also: Bull and Bear Markets, According to Oaktree’s Howard Marks

*Here are our recent posts on gold.