I could never be accused of being a great forecaster of markets, but I
believe this commodity bull market is dead. When a bull market has a
run-up like we have seen in Gold and other commodities over the last
few months, that is usually a good sign the end is near. When that
move ends violently like it has in many of these markets in the past
week, that is an even better sign that bull market is over. Blow off
tops always end violently, especially when many analysts are in
denial. Remember the Nasdaq boom in the late 1990's? Those stocks
were going to the moon, and the analysts still believed in the
fundamentals of these companies, even as the prices came cra****ng
down. That bubble was followed by the bubble in real estate, just a
few years later. Back in 2006 after the homebuilder stocks peaked,
every homebuilder CEO would comment on CNBC that the fundamentals
argued strongly for a continued strong housing market, due
demographics. Now, in the case of commodities, analysts still argue
that we are in an ongoing bull market, due to the global economy.
What is the lesson that we need to learn here? Markets are not driven
by supply and demand factors, but by psychology and emotion! I
strongly suggest that all investors read "Extraordinary Popular
Delusions and the Madness of Crowds." This book was written in the
19th century, and describes a number of bubbles that occurred in the
preceding few hundred years.
Now, I am not saying that is a smart thing to start going out and
shorting these commodity markets. The volatility will kill you if you
do not pick your spots wisely. However, going forward, once these
markets settle down a bit, I suspect the easiest money will be made on
the short side.
As commodity markets continued to collapse on Thursday, stocks
rebounded nicely, and the dollar had a huge day. I think ultimately
the dollar will need a period of consolidation before it can trade
much higher from here. With the sharp pull back in commodities, and
low interest rates in place, watch for money to flow into stocks,
especially the high yielding issues.
scott@[EMAIL PROTECTED]
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