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As mentioned in one of my previous posts, the hot money in the global market, instead of pouring back into the housing market, will be used to generate another speculative bubble. Now, it's more and more clear that, we are eyewitnessing the development of that bubble, the bubble in commodities. Before moving forward, let's take a look at the price increments of some of the commodities through the past year:
crude oil: up 80%
corn: up 66%
gold: up 37%
rice: up 120%
wheat: up 95%
soybean: up 80%
steel: up 35%
Besides the fundamental factors such as global economic growth, national and international policies etc, we all need to understand the conceptual change in commodities trading during the last couple of years. Sure, the commodities future trading market has been around for a long time and there was always speculative commodities trading in Chicago commodities houses. However, today's commodities are treated more as asset classes. For instance, the rice in your rice bowl is not simply rice any more, it's an asset classes that has financial growth potential. Seeing this money rolling opportunity, a lot of large investors, the famous Soros being one of them, are jumping into the commodities market. On top of that, numerous new commodities investment vehicles including derivative instruments are created to attract hot money, including part of those money that were injected into the market by the Fed. Ironically, that implies that, we, as taxpayers, all have paid for it to a certain extent and therefore, we are all contributors of the bubble. What a joke!
A current study showed that, during 2006-2007, the estimated inflow hot money into the commodities market was about 100 million dollars a day. During this Feb and March, the daily inflow rose to as much as 1 billion dollars. No wonder we were seeing the eye poping stock price increases in almost any commodities stocks. Seeing all this madness, the retail investors can not resist the temptation anymore. Helping by the new trading vehicles created by Wall Streets such as commodities ETFs and commodities index funds, retail investors are pouring their money into the commodities sector hoping to catch the train, in the same way that they tried to catch the Nasdaq bubble back in the late 1990s.
As the hot money keeps pouring into the already hot market, the gap between the commodities producers and the end users are getting wider and wider. Who are those end users? People like you and me. This bubble will create great wealth for investment houses and commodities traders and brokers, and to some extent, investors like you and me as long as we don't get burnt when it finally bursts. Meanwhile, this bubble will affect end users' daily lives as all commodities prices are skyrocking. The sad part is, this bubble will distort the global economy and also cause great harm to the poor people. To put it bluntly, the poor people are being raped by the wealthy and rich people through the commodities bubble.
The way it looks, this commodities bubble might have years to go before it runs out of steam. Knowing that it's a bubble, investors like us might still want to put certain percentage of our porfolio into the commodities sector. As a matter of fact, commodities holdings could serve as a hedge against the potential decline in stock and bond prices. However, we need to understand that, just like any of the previous bubbles, there will be deep correction along the course and also, it will eventually burst. Investors like us need to be very cautious and don't overcommit ourselves. Personally, treating commodity companies as growth companies, I think buying some long term close to the money leap on selected solid commodity companies will yield great profit. To maximize your profit? Some long term further out of the money leap might not be a bad idea as long as you believe this madness will have couple of more years to run.
One final word, we all need to understand that, a lot of the investment houses behind this commodities bubble are the same hedges funds and financial organizations that involved in the subprime mortgages. They have created a mess that led to the economic downturn we are facing today. I guarantee that, they will geniusly create other kind of commodity securitization products that will eventually bring great harm to the global economy that will eventually affect our daily lives.
For those who believe this commodities bubble will last forever, please don't make a fool out of yourself. After all, this is not the end of the world.
crude oil: up 80%
corn: up 66%
gold: up 37%
rice: up 120%
wheat: up 95%
soybean: up 80%
steel: up 35%
Besides the fundamental factors such as global economic growth, national and international policies etc, we all need to understand the conceptual change in commodities trading during the last couple of years. Sure, the commodities future trading market has been around for a long time and there was always speculative commodities trading in Chicago commodities houses. However, today's commodities are treated more as asset classes. For instance, the rice in your rice bowl is not simply rice any more, it's an asset classes that has financial growth potential. Seeing this money rolling opportunity, a lot of large investors, the famous Soros being one of them, are jumping into the commodities market. On top of that, numerous new commodities investment vehicles including derivative instruments are created to attract hot money, including part of those money that were injected into the market by the Fed. Ironically, that implies that, we, as taxpayers, all have paid for it to a certain extent and therefore, we are all contributors of the bubble. What a joke!
A current study showed that, during 2006-2007, the estimated inflow hot money into the commodities market was about 100 million dollars a day. During this Feb and March, the daily inflow rose to as much as 1 billion dollars. No wonder we were seeing the eye poping stock price increases in almost any commodities stocks. Seeing all this madness, the retail investors can not resist the temptation anymore. Helping by the new trading vehicles created by Wall Streets such as commodities ETFs and commodities index funds, retail investors are pouring their money into the commodities sector hoping to catch the train, in the same way that they tried to catch the Nasdaq bubble back in the late 1990s.
As the hot money keeps pouring into the already hot market, the gap between the commodities producers and the end users are getting wider and wider. Who are those end users? People like you and me. This bubble will create great wealth for investment houses and commodities traders and brokers, and to some extent, investors like you and me as long as we don't get burnt when it finally bursts. Meanwhile, this bubble will affect end users' daily lives as all commodities prices are skyrocking. The sad part is, this bubble will distort the global economy and also cause great harm to the poor people. To put it bluntly, the poor people are being raped by the wealthy and rich people through the commodities bubble.
The way it looks, this commodities bubble might have years to go before it runs out of steam. Knowing that it's a bubble, investors like us might still want to put certain percentage of our porfolio into the commodities sector. As a matter of fact, commodities holdings could serve as a hedge against the potential decline in stock and bond prices. However, we need to understand that, just like any of the previous bubbles, there will be deep correction along the course and also, it will eventually burst. Investors like us need to be very cautious and don't overcommit ourselves. Personally, treating commodity companies as growth companies, I think buying some long term close to the money leap on selected solid commodity companies will yield great profit. To maximize your profit? Some long term further out of the money leap might not be a bad idea as long as you believe this madness will have couple of more years to run.
One final word, we all need to understand that, a lot of the investment houses behind this commodities bubble are the same hedges funds and financial organizations that involved in the subprime mortgages. They have created a mess that led to the economic downturn we are facing today. I guarantee that, they will geniusly create other kind of commodity securitization products that will eventually bring great harm to the global economy that will eventually affect our daily lives.
For those who believe this commodities bubble will last forever, please don't make a fool out of yourself. After all, this is not the end of the world.
評論
大膽做
2008-06-09 22:29:13
回複
悄悄話
i agree with you partially. personally i think the oil price has a lot to do with the commodity prices, do you think the oil price could come down to earth anytime soon?
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