Back to the Future - Commodities Rule Again

I feel like I've fallen asleep and someone transported me back to about 9 months... the whole gang is back!

HAL9000 is on a buying spree of epic proportion.

Breakout... breakout... breakout... breakout... global growth is back. Obama says so (well actually he said yesterday the economy is bad and getting worse - details, details). Everything he touches, turns to gold. Best. President. Ever. And he hasn't even started. At this pace the market might get back to all time highs by Inauguration day. Surely Dow 40,000 will be in reach by end of term 1 in 2012.

I'm having flashbacks as all my old positions are being taken back to the future by HAL. The charts above are why I say it makes zero sense for you to spend even 1 minute of research in commodity stocks. In the new hedge fund era of the past few years, you just buy 1, and they all go together; they are all the SAME stock in their eyes. If it's coal, if it's natural gas, if it's wheat, coffee, oil service, infrastructure, steel, fertilizer, iron, dry bulk shipping, oil service - it all is 7 degrees of Kevin Bacon and the hedgies will move en masse into ALL of it. And vice versa.

That is the casino we've built, so you don't need to waste a precious moment doing research or fundamental analysis on any of the companies - just buy 1 or 2 and you own them all. You can even buy 8th derivatives like Gafisa or Mercadolibre as long as the stock is located in a country with commodities to sell; it gets run up as if it has an oil field under its headquarters.

"Student body left". "Student body right" - it's been like this for well over a year now. It's nonsense - but this is the 'efficient market' in action. Horde trading. Computers at their best.

When I start seeing action like this (stocks no one wanted two weeks ago there are now fist fights on the casino floor over who can buy it first) and reading the bullishness that has now overtaken everyone, it's time to get my jacket on, and begin slinking to the door with the Exit sign over it, keep one foot in the party with my Vodka & Kool Aid tonic in hand, but be ready to be the first to the door when the cops come.

p.s. personally I'm hoping for a return to $140 oil so we can hear talk about how $4 gas is a great thing for the American economic recovery. But that's just me.

Comments

[yank:]

Mark:
Enjoyed reading your article. Horde trading and "Quants" have as you said taken over the commodity investing world once again. As a commodity trader since 2002 I share your sense of unease about this "casino". I liked it a lot better when no one ever heard of Rio Tinto or BHP. What is happening is like the boat where everybody is running to one side of the boat. You know that it will eventually capsize. This is indeed a scary time for investors. When you can't or (don't need) to fundamentaly evaluate stocks for purchase that is a very dangerous thing.

Yank

Jan 07 12:43 PM

[Itsonlymoney:]

Why have a computer if all it will help you do is just the same as everyone else?

Jan 07 12:48 PM

[schminkie:]

yep. pretty odd maybe? till i see even a tiny bit of fundamentals in the ebb and flow on wall street i'll sit quietly. my coal and ore is already screwed. maybe if i get back to a 50% loss i'll sell and short.

did you notice that china is making noises about building 3 railroads and rebuilding a few earthquake torn provinces eg steel may be back?

Jan 07 01:34 PM

[ArtfulDodger:]

Wonderful irony!

Good conclusion.

Jan 08 02:44 AM