Commodities: The Next Bubble?

With the Fed slashing the funds rate to 1% on Wednesday, it’s worth remembering what happened the last time they did this: We got the most massive housing bubble in the history of mankind. 

On Wednesday, in the midst of this crisis, where the only concern appears to be for the present moment, the seeds for the next bubble were being sown.  The adjusted monetary base has increased by 35% in just the last six weeks: Adjusted Monetary Base Chart.

My prediction is for a super bubble in commodities.  With the emerging world industrializing, the squeeze on the fixed amount of materials in the earth is poised to intensify over the next 15-20 years.  Combine that with the loosest, most reckless, monetary policy in history and I think the stage is set for $500 oil, $15 copper and $4000 gold.

This kind of thing is going to be an economic, as well as a geopolitical, problem.  I’m talking about wars between countries for the control of natural resources.

The corresponding destruction of the monetary unit and resulting hyperinflation will also create all kinds of problems for economic exchange and the entire specialized, division of labor structure of the global economy.

On Wednesday, the seeds were being sown for an economic apocalypse.

 

Comments

[LCACM:]

Correct analysis. It is amazing that the FED keeps repeating past mistakes. The previous 2 bubbles were due to unreasonably low interest rates. With such low interest rates a commodities bubble is very likely.

2008 Oct 30 09:40 AM

[RiskAverseA...:]

If I were a pathetic jellyfish, I would say your analysis is correct. I would comment as though there is nothing a free people, constitutionally protected from tyranny, could do. But that's just not the case. So, spare us the hysteria, Gertrude. It serves no good.

2008 Oct 30 11:29 AM

[Mac77:]

Concur with analysis over a Long term time horizon. In my opinion, the Political class are more concerned with the next election cycle then solving fundamental economic problems. They can see it, they are just in denial. It's human nature. Like the reporters of today, they come up with an opinion and then go out and find statistics to back up their point of view.

Welcome to the modern political correct world...you have your truth and I have mine. What BS. Bad news for Idealist, reality doesn't care what you think.

I can already hear them now. Inflation, where?....I don't see it. Shortage of light sweet crude...Ha Ha, gas prices are falling....oh boy...here we go again.

History is repeating itself. Nobody believed the credit crisis until it was too late...here we go again. Back to the 70's. I guess I'll put my Three Dog Night LP on the old turntable and wait for inflation to come back so I can buy some Commodities .....and at the very least fiddle while Rome burns.

2008 Oct 30 12:56 PM

[carey_jim:]

Don't forget that 3 billion people live on less than 2 dollars a day.

People don't need as much stuff as they think they do.

2008 Oct 31 12:58 PM

[ValueInvestor:]

This article is a joke.

2008 Oct 31 03:05 PM

[henarl:]

I sure hope you're right as I'm long a whole bunch of oil, gas, pipeline, and tanker stocks. Maybe I'll live long enough to sell them for big capital gains. Meanwhile, they're paying really great dividends and I'm getting fat selling covered calls. Good for today, hopefully good for tomorrow.

2008 Oct 31 05:35 PM

[MNSL:]

Did not we forget that we had a commodity bubble together with property bubble?

Now almost all types of assets prices are falling. Not only that now their currencies also falling.

We are at the beginning of commodity bear market.

It will take 05 to 10 years to form the next bubble in the commodity market.

Even OPEC cut or even investment banks write reports, still oil and other commodity prices will come down. Sooner than later oil will go down to$35 a barrel.

We know what happened to $200 oil reports? Where is the demand for commodities they said?

Reasons for commodity bubble:

Trading in derivatives.
Speculation
Activity of market participants including investment banks

Now they have created currency and credit card bubble as well.

2008 Oct 31 10:20 PM

[Gyoza Mimi:]

Rubbish of an article - incoherent 3 paragraphs of statements with no analysis, logic, supporting arguments or conclusions.

2008 Nov 02 10:30 AM

[Greg Feirman1:]

"Did not we forget that we had a commodity bubble together with property bubble?" - MNSL

In my opinion, that was just a preview of the real deal to come once we work through the current global mess.

2008 Nov 05 12:20 PM