No Bubble in Commodities
Thanks to the Ag names getting crushed yesterday, a lot of chatter about commodities bubble bursting is going around. Even Cramer equated Commodity names to the previous Tech bubble. This suggestion is simply crap.
Commodity names are making a sick amount of money. Their cash flows are very real, and their estimates are reasonable due to the price of the commodities to which their products are pegged.
As the world economy slows, so will the consumption of these commodities, hence the underlining price will decline. Will they decline quicker then they rose… I do not know. (I have not traded commodities, except oil, so I do not assume to know those markets.)
Oil on the other hand is a different beast all together. With oil, we know we have reached a peak in global production, and despite the slow down the usage has not retracted as much as I thought it would. When I shorted oil, my major tell was within the Emerging Market names, as well as most commodities collapsing except oil. The reason it had resiliance in its collapse is because its fundamental supply issue is much better known then other commodities. The only thing that will bring down oil below $80-85 a barrel is the use of alternative energies that will allow oil not to be used.
