icandoitdon

Is the Bull Run in Commodities Over?

for those who think they get it, consider the following:

commody stocks having "solid revenues and earnings" has utterly nothing to do with price bubbles in the underlying commodity. at today's levels, about 20% off the may peak, oil is still nearly double the price of last year while XOM is down almost 10%. if the market believed peak oil prices were sustainable, XOM would not be down 10% and selling at under10x trailing earnings....it is selling at 10x trailing earnings precisely because the market believes those are peak earnings, not sustainable in a softening world economy.

oil is just one example of commodity stocks that have historically sold at modest p/e's because they're cyclical businesses. such businesses do not and should not command premium multiples. neither will they strongly correlate with the underlying price of the commodity, which is extremely volatile.

the bubble in technology is not remotely comparable to the bubble in world oil prices. oil has known supply/demand characteristics. high prices create demand destruction, which we're now seeing...china and india notwithstanding. oil prices will always revert to an equilibrium price based on supply/demand fundamentals. but that doesn't mean that bubbles can't periodically surface any more than it means that price can't periodically collapse. both have happened in the past and both will happen in the future. we've seen a quadrupling of oil prices in the last 4 years or so, which is historically unusual (i.e. a bubble) but not unprecedented. those who believe that the days of $40 oil "are gone forever" are simply ignorant of both markets and history. that includes general motors, goldman sachs, boone pickens, and others with short memories.

epeon's comment that commodity prices are "still historically high" despite a slowing world economy speaks for itself. look for further declines if the world economy continues to weaken.

Is the Bull Run in Commodities Over?

"what we are witnessing is a corrective reaction to an unusual run-up in prices."

yes, that's called a speculative bubble, as i've posted many times before. throughout 2008 oil has not traded as a commody...it has traded as a financial derivative. that trade is over, killed by a softening world economy. as for china and india, hello??? a softening world economy affects them too.

notice that deafening silence from all the morons who claimed that speculation wasn't a factor in oil prices.