I think we’re in a temporary economic reality where we jump from economic bubble to economic bubble.
Think about it: the late ’90s was the stock bubble, the early to mid-2000s were the residential real estate bubble, and now the late ’00s is a commodities bubble.
Remember the “goldilocks economy”, where everything was “just right” for growth? When that bubble popped, investors turned to the perceived safety of real estate, which in fact had been appreciating well for a few years. I remember representatives of the National Association of Realtors analysts ridiculously explaining away the bubble by exaggerating long term demand.
The popping of the real estate bubble was perceived to be so economically influential that investors ran for traditional “bad times” commodity hedges. Now we have oil, food, and metal prices that are likely far above prices justified by market fundamentals.
Seriously, is there enough sudden new demand across so many commodity categories as to drive up their prices so sharply in the past few months? I can’t see any. For once, I believe OPEC: world oil markets are sufficiently supplied. And sure, the number of mouths to feed and per-capita food consumption are increasing, but enough to suddenly cause a global food crisis?
If I had money to speculate, I would short sell commodities with a two year time horizon. I just don’t see this commodity bubble lasting, especially as the dollar appreciates and investors become interested in less speculative investments.
That being said, some long-term trends are undeniable. Oil has nowhere to go but up over the decades. But in the immediate term, I don’t see how current prices are justified.