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There Is No Commodity Bubble Yet
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What's going on in the stock market these days? Are we in a commodity bubble or not? Discussion on commodity trading these days is rampant. I think folks want us to be in a bubble, so we can move on and rally some more in other sectors. I don't blame them a bit for wishing, but the fundamentals don't support their desires--at least for now. At issue is supply and demand. We're using more than we're producing in most of the commodities so that makes the price rise. It's simple economics. Yes, there'll be dips and rallies within those individual resources; gold, oil, grains, natural gas, and coal can all rise and fall with the news of the day, but the underlying trend remains upward and will probably continue for a few years. Read Saturday's "Options Report" in the Wall Street Journal by Geoffrey Rogow. The near-term options on USO show a put-call ratio of 1.82. The Materials Select Sector SPDR Fund has a put-call ratio of 2.57. If the options traders can be trusted, a bubble from the energy and materials stocks is safe from bursting soon. Note the insider buying list where Chesapeake Energy (CHK) CEO A.McClendon purchased millions of dollars of his own stock at an average cost exceeding $54.00 per share. Because CHK has been one of my biggest gainers over this decade, I'm buying, too, Mr. McClendon. I'm also loading up on another natural gas producer, El Paso (EP). Gold is rising today. It's often at its lowest point in the second quarter before moving higher through the first quarter of the following year. I'm a buyer of gold mining stocks. The jewelry association today announced big gold purchases because they felt the metal was downright cheap at current prices. I continue to like GG, GFI, NEM, EGO, and AUY, but I think most of the gold mining stocks will move upward on momentum alone. All the best to you healthcare and financial supporters out there, but your time has yet to arrive. I'll join your bandwagon in 2011 or 2012. | ||
