Quote:
Originally Posted by John Kicklighter
IMO, commodities are 'late to the game' because they have genuine economic value rather than being largely speculative instruments for return. I think the whole reason why there was so much interest in commodities (and such an incredible rally in the prices of some of the key raw materials) was specifically the build up in speculation.
With the US government (and a few others around the world) cracking down on speculative drives in these necessary goods, the swings will once again be more constrained and slow to follow any sharp rebounds in high-speculative financial assets.
|
Commodity prices were also hit hard through the forced liquidation of hedge fund positions in the latter part of 2008, which was triggered from investor redemption requests and vastly reduced, and more expensive, credit lines on offer from prime brokers. This, in turn, put a swift end to the very profitable, leveraged long commodity / short financial trade. With the benefit of hindsight, we can now see how much of an inflated asset-bubble had formed with respect to the price of crude oil. That is an important reason, in my opinion, as to why commodities, and commodity stocks, were late entrants to this bear market.
