Monday, August 4, 2008

Is the commodity bubble bursting?

From Blogging Stocks:
During July, the prices of oil exploration and coal stocks mentioned in my newsletter tumbled precipitously. For example, Arch Coal (NYSE: ACI) and Peabody Energy (NYSE: BTU) lost roughly a quarter of their value by the end of July and Ultra Petroleum (NYSE: UPL) and Southwestern Energy (NYSE: SWN) which had been up over 40% through June ended July up a relatively paltry 4% and 11% respectively.

I find this interesting because it violates one of the basic theories I have about what moves stock prices. This beat-and-raise theory says that if a company beats earnings estimates and raises its guidance, then the stock will rise. Otherwise it will fall. In the case of these four companies, each of them with the exception of Ultra which did not report, reported doubling or tripling of earnings and raised their guidance....MORE

Corn is trading down 22 cents this morning, soybeans down 38 cents and WTI down $1.16 with a tropical storm* in the Gulf, something that two years ago would have been a fine excuse to put on the rally hats.

*I went home Friday thinking "This will be a great set-up for a pop-and-drop". Hasn't happened. From Dr. Jeff Masters Wunderblog:

...The forecast
The shear is forecast to decrease to near zero by Monday night, and sea surface temperatures will increase by about 0.5°C. The depth of the warm waters get shallower, with the Tropical Cyclone Heat Potential decreasing to about 20 kJ/cm^2 Monday night. Taken together, these factors should allow Edouard to intensify, although it may take 24 hours or so for the storm to organize an eyewall, as occurred with Dolly. The latest 00Z (8pm EDT) GFDL and SHIPS intensity models both bring Edouard to a borderline tropical storm/Category 1 hurricane by landfall, with the strongest winds occurring near the Texas/Louisiana border....

Figure 1. Latest satellite image of Edouard.