You’ve know about investment bubbles. We’re are all living through the results of the housing bubble. Of course with the bursting of the housing bubble there is now a new bubble in commodities. It started in oil, but has grown into metals and food.
How does this start? Bubbles begin when your pension fund and your 401K mutual funds begin looking for higher returns. That’s not a bad thing. Just like securitization of home mortgages isn’t a just bad thing at it’s base. It’s disastrous in the extreme when it becomes inflated into a “bubble.”
So, what’s with the commodities bubble? Most importantly, as an individual, what should I do about it?
First, don’t trade in commodities futures. It is strictly for the huge boys who can stand to lose a pile of money or people who can actually take delivery of the commodities and put them to use.
Second, don’t trade in commodities futures. The large boys have stopped expanding their positions in commodities. This week a major New York pension fund decided not to increase their position in commodities. They’ve hundreds of millions invested in commodities and have authorized much more. However, they have decided not to make the investment. I would bet that many other large portfolio managers are looking at their exposure in commodities just now.
Is it the beginning of the end for commodities investment? No, but it is certainly the end of the beginning. We’ve seen the major run up. Current massive position holders will start looking for opportunities to take profits and reduce their exposure. If the large boys are looking to get out, I would too.
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