Commodities are Scary

Markets don't go up forever. We saw that with dot.com stocks and residential real estate. Today the speculative excesses are in commodities. Pension funds, hedge funds, money management firms, and just about every other pool of investment money is pouring into commodities. In recent days oil, gold and other commodity prices have declined sharply. But I expect a lot more to come. I don't know the timing, but this boom will go bust.

Here's a sobering article by David Roche, the savvy thinker at Independent Strategy in London. It was published in the Financial Times. The bottom line:

The speculative element in commodity markets has grown sharply; non-commercial trades now constitute more than half of all trading, with hedge funds the biggest movers into the market. And in 2007, global equity funds switched away from financials and real estate into commodities in a big way.

But that's about to change. Global growth is declining fast. Recession will ensue and no region or asset class will be immune from its ravages. Contrary to received wisdom, economic decoupling is unlikely....