Thursday, March 6, 2008

Commodity Bubble?

I previously asked whether the next bubble will be in commodities. Yves Smith has chimed in on this discussion over at Naked Capitalism in light of a recent article in the Telegraph titled "Fears of a Commodity Crash Grow." One excerpt from Smith:

[The author of the article,] Evans-Prichard [,] is not saying that commodities will go into a long-term decline. However, given a 20% runup in many indices in a mere two months after a 30+% increase last year, some observers deem the market to be overbought and due for a correction. Evans-Pritchard points out that if you believe that the US and Europe are going to enter a recession (insiders believe that European financial institutions will soon see the kind of stress their US peers have suffered), Chinese demand isn't strong enough to justify continued robust prices (ex agriculture).

As parting food for thought, I have posted below two graphs of the commodity-tracking CRB Index.


  1. No bubble: The runup is a reasonable and realistic reaction to the expectation that the fed intends to debase the US dollar until the banking system's real assets cover its nominal liabilities.

  2. OPEC agrees:

    OPEC rebuffed its top consumer [Bush], arguing that the world was well supplied with oil and blaming financial speculators and mismanagement of the United States economy for the current high prices.

    "Mismanagement of the United States economy"--heh.

  3. How would the graphs look expressed in terms of average world currencies instead of US dollars?

  4. I recently read an article by Eric Janszen in Harper's Magazine February issue that speculated that the next bubble would be in alternative energy and infrastructure.

    Interesting read

  5. Interesting post! I can't help but think that many commodities are due for minor corrections, but that with demand being strong and unwavering for many commodities, that they are not going anywhere.

    Here is a good article on this topic:

  6. I think once the US sheds enough jobs the demand for commodities will spiral down.