Commodities Bubble Needs to Burst

Mar. 03, 2008 3:00 PM ET19 Comments
Stephen Frankola profile picture
Stephen Frankola

....and the government can help this process.

The only good long investment in this current market is an investment in a commodity. Take your pick out of the bunch; whether mined, grown, or pumped, the price is skyrocketing.

I'm not sure that I have earned the credibility to call out professional analysts, but I can't believe that anyone who is still pumping commodities is a prudent investor. Below is the chart of wheat; I think it exemplifies how the current prices can't be justified as a normal movement.

Not too many tangible goods can increase in price fourfold in three years (or double in one). However, any agricultural product (or byproduct) has done this recently; corn, soybeans, soy oil, and other products have doubled or tripled in this same time frame.

Precious metals aren't too different; gold is setting new (non-inflation-adjusted) highs, while silver and platinum have enjoyed similar run-ups. Oil is also at historic highs, which is in turn increasing prices of natural gas, heating oil, and gasoline. Coal, the one non-renewable resource with hundreds of years of proven reserves, has also ballooned in price recently.

I can discern a few reasons for these increases:

  • Devaluation of the dollar
  • Mass-exodus from US equities
  • The ethanol hoax
  • Speculation

The dollar's sinking value simply makes globally-available goods more expensive. The cheapening of money by the Federal Reserve isn't happening; hopefully economic fears will pass over soon so that monetary policy can change.

The stock market performance is also leading to a search for alternative investments; many people think commodities are the answer. The only stocks currently performing are commodity stocks, as the underlying prices rise themselves.

The promotion of ethanol as a next-generation, better-than-oil fuel is a massive policy blunder. OK, it's a great PR opportunity to take a picture next to a

This article was written by

Stephen Frankola profile picture
Stephen Frankola contributed to Seeking Alpha while attending the Pennsylvania State University, graduating in 2011 with a Bachelor of Science degree in Accounting.

Recommended For You

Comments (19)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.