Will the Commodities Bubble Stay Deflated?

Mar. 24, 2008 5:46 AM ET3 Comments
Tim Iacono profile picture
Tim Iacono

Boy, analysts and talking heads were sure quick last week to proclaim that the commodities bubble had burst ... again. They said much the same thing back in 2006, but the darndest thing happened - the bubble came back to life.

If only the housing and stock market bubbles could be re-inflated so quickly...

Then again, if the commodities bubble didn't stay burst last time, was it really a bubble?

If so, what are the odds of this one staying burst?

We'll find out soon enough.

The reaction to last Tuesday's rate cut by commodity markets - where speculators were said to be throwing in the towel after the Federal Reserve cut short-term rates by just three-quarters of a point rather than a full point - brings to mind what they sometimes say about British police officers.

Not issued firearms, but limited to such items as batons and pepper spray instead, when the bad guy is getting away from them, all they can do is yell:

STOP! Or I'll yell STOP again!

The thing is, when Ben Bernanke said much the same thing on Tuesday, commodity speculators listened to him.

They stopped in their tracks and sold what they had.

When the Fed chief highlighted inflation as a top concern before coming up short of market expectations for the largest rate cut in history (as a proportion of the current interest rate) - the speculators gave up.

They stopped, turned around, and walked back slowly with their hands in the air!

Now, the odds are that the endowment funds at Harvard and Yale were buying on this dip right along with their new buddies at pension fund behemoth CalPERS, but don't tell that to the traders at the NYMEX or to those who bought their first gold coins at $975 and

"If commodity prices finally burst, then the money that was being invested in commodities should return to the stock market."

This article was written by

Tim Iacono profile picture
Tim Iacono is the founder of the investment website 'Iacono Research', a subscription service providing market commentary and investment advisory services specializing in natural resources. He also writes a financial blog known as 'The Mess That Greenspan Made', a sometimes irreverent look at the many and varied after-effects of the Greenspan term at the Federal Reserve. Use the links below to visit Tim's website/blog.

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