A Look at the Respective Rallies in Tech, Housing and Oil

We did a B.I.G. Tips report last Tuesday comparing the tech and housing bubbles to the current rally in crude oil. Kedrosky asked to publish the chart from the report last week, and then he provided his take on the oil rally the next day. Friday the Wall Street Journal makes the same comparison in a front-page article titled "Bernanke's Bubble Laboratory." Below is the first paragraph from the story:

First came the tech-stock bubble. Then there were bubbles in housing and credit. Chinese stocks took off like a rocket. Now, as prices soar on every material from oil to corn, some suggest there's a bubble in commodities.

Click here to check it out. It's worth a read.

Below is the chart from our B.I.G. Tips report last week. Click here to subscribe to Bespoke Premium today.

click to enlarge

Comments

[Ames Tiedeman:]

Anyone who thinks Oil is not in a bubble is a fool..

2008 May 18 09:01 PM

[Hugh:]

The word, "bubble," is in a bubble. Too much "bubble" talk, and soon the word will be meaningless.

2008 May 19 03:39 AM

[pharma:]

The tech bubble was just a pure speculation. There was no real substance under it.

The present housing bubble was a child of excessive greed and a big fraud on a part of the Wall Street and securities rating agencies. The government and the Congress also made a major contribution to the problem.

Now, we come to a commodities "bubble". Well, the Feds and the Treasury are printing money as crazy trying to solve financial and housing problems through inflation. However, the commodities are the real stuff. Their is no way it can be "printed".

Consequently, the is no commodity bubble now yet. The commodities prices just reflect the present inflation adjusted prices. Please note the commodities prices are much more inflated in US$ and than in euros.

2008 May 19 09:04 AM

[Blutown:]

A couple of other things to remember about oil vs. other markets. First, oil is an international commodity for which the US competes against growing demand. The Saudi's more or less said this when saying that they would increase production when their "customers" demanded it. Classic sellers market.

Second, oil does not operate on a true free market basis. Although OPEC has lost a lot of its influence, the price and supply are manipulated by a few select parties. For there to be a bubble to burst, supply would have to be loosened allowing prices to decline. Again, the Saudi's made it clear that they are satisfied with both supply and price. On the demand side, short of a world recession or other major event, demand isn't likely to fall far enough to cause a bust.

Price fluctuations are likely to occur but a bubble bust is unlikely due to the unique dynamics of this issue.

2008 May 20 04:51 PM

[Kunst:]

pharma: "The tech bubble was just a pure speculation. There was no real substance under it."

There is more similarity than people like to remember. Yes, there was tremendous excess in the tech bubble, but it wasn't all just filmy soap. For example, Cisco stock dropped 90% from peak to bottom.

In this case, yes there is an increasing tightness of supply, but it has been magnified by speculation to an unsustainable level. Something will prick the bubble and oil will return to a more rational level. A slowing world economy (accelerated by the very oil and commodities bubble of which we speak) and a tip of the balance in favor of supply will send all that hot money scurrying off to look for the next hot thing, and the last buyers will be left holding the bag.

2008 May 21 02:33 AM