Tuesday, January 22, 2008

A Tale of Two (Classes of) Commodities

It appears that a recession is a certainty in real terms. The government's nominal argument ain't fooling anybody.

The run in commodity prices for the near term is over, and painful corrections are likely in many commodities. Base metals are no where to be, but even precious metals and energy commodities will likely be overcome by the contraction, at least for the next several quarters.

The energy crisis is not going away, though. This is just a time out on the field. Opportunities of magnanimous proportion will present themselves. This is the time to get your ducks in a row.

The bond market has had the mother of all rallies. I could be wrong, and rates could head lower and bond prices higher, but I am not willing to make that bet at these prices (still I sold weeks ago and bond prices moved higher since then) and would prefer to hold cash.

There are now 2 kinds of commodities. Those that will rise in price as the energy shortage takes hold over the next few years - and everybody else. One group will soar, the other will humble you. Gold and SIlver? Tough call. They have had a hell of a move up, and there are not many bids around for anything. Still, Gold and Silver tend to do well in deflation AND inflation, but discretion is the better part of valor. This is no time to be a hero. That time will come.

Mentatt (at) yahoo (d0t) com

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