The heart of Motley Fool CAPS lies in each of the 105,000-plus members who make the space their financial home on the web. The pulse of the community, then, can be found in the blogosphere, where each player has both a forum and a voice.
Lately, the topic on many Fools’ minds is whether commodities can sustain prices at or above present levels, or whether speculative buying has inflated a balloon that’s preparing to pop.
The case for the speculative bubble
CAPS bloggers have been quite outspoken in declaring that the commodity boom is about to bust, so we’ll start with this side of the debate.
All-Star abitarecatania, the sixth most-recommended blogger at CAPS, sparked a lively debate this week with these comments:
Like Vader I sense danger in the commodity bubble. I have closed most of my commodity longs. So it will go for the First Commodity Bears, who attacks the Commodity Bull. The first ones in will be killed (ref my MOS, MON, POT calls). The guy, who times it right here in CAPS will be a hero and Top Fool, the way the previous Top Fool arrived by underperforming all the homebuilders and residential real estate.
The commodity bubble might have more up side, but long commodities and short the US dollar is one of the most crowded trade in the world today.
But eventually the commodity bubble will be popped. The commodity bubble is the last bubble left by the reckless Central Banks monetary inflation and government overspending. When the commodity bubble pops, like the DeathStar explosion, you had better be clear.
abitarecatania mentions three agricultural stocks that have harvested big gains of late: Mosaic (NYSE: MOS ) , Monsanto (NYSE: MON ) , and Potash (NYSE: POT ) . His Mosaic bear pitch drew some feedback, as well.
CAPS All-Star drewbink used his first blog post to compare the original intent of futures markets to their present form:
Commodity markets are theoretically created to promote an efficient market between buyers and sellers. A wheat farmer can sell his produce, via a commodity futures market, months before the wheat has grown. … Where is the problem? Remove the above “commercial” wheat company and enter the “non-commercial” institutional investor. Armed with almost free money from the Fed the same individuals whose actions almost imploded the world banking system … are looking for a new playground.
The case for hot commodities
Back in November 2007, CAPS All-Star SaintCroix turned to commodities guru Jim Rogers and his book Hot Commodities for a perspective on how long-term secular bull markets in commodities have behaved in the past:
One of Rogers' ideas is the importance of cycles. Stocks is the investment class of choice for a decade or two, and then commodities, and then stocks again. Rogers' has a chart to bolster his thesis. You want to be in stocks from 1877-1906, you want to be in commodities from 1907-1920, you want to be in stocks from 1920-1929, you want to be in commodities from 1930-1949, you want to be in stocks from 1950-1969, you want to be in commodities from 1970-1983, you want to be in stocks from 1983 to 2000. With the tech crash of 2000, according to Rogers, now is the time for commodities. He figures we're in the middle of a cycle that will last until around 2014 or so.
Responding to abitarecatania’s opening post, CAPS All-Star podrag said:
We will need a credit contraction before this happens. This means banks going bankrupt, not being bailed out. Otherwise you keep on with the massive M3 growth which will continue to fan the flames in food, energy and commodities in general. How will the price of commodities come down unless the Central Banks stop creating so much excess money and credit?
All-Star ATWDLimited homed in on gold for his bullish discussion back in March.
The not-so-final word
Although the fundamental drivers behind the price of gold, for example, may overlap significantly with those of oil, oil is a separate beast entirely.
Study each commodity separately. Learn to distinguish between corrections and long-term trend reversals. I have seen no reversal of the underlying factors driving many commodities higher, and the damage that’s been done to the U.S. dollar is very real.
Enormous sums of money moving into commodities right now could foreshadow a great deal of volatility. But I agree with podrag: Something fundamental must shift before a reversal can occur. I see no "bubble."
Who get’s the final word? You do. Share your thoughts on commodities in the comments section below, or better yet, come join us on the blogs. CAPS is free!