Thursday, March 6, 2008
Commodities in a bubble? What a joke
Anyone who reads the blog by now knows the ongoing debate about whether commodities are in a bubble or not. I just have to laugh when I see these kind of comments. This is the bulls way of shaking off only the most determined riders.
Anyway I'm going to show you how long term secular bull markets work. First off they almost always have a very scary correction usually around the 5th year that kicks off only the most die hard bulls. We saw that correction in the stock market bull in 87 in the form of Black Monday. Now take a look at the last chart and we can see that despite that being the worst crash in history it was hardly the end of the bull market. As a matter of fact looking back over the whole bull from 82-2000 it's an almost insignificant blip. Now in 06 we saw that 5th year correction in the commodity markets. I remember at the time hearing countless analysts calling for oil to drop back down to $10-15 a barrel. I had to laugh then too. We simply had not found and brought online the oversupply needed to end the commodity bull market. No this was just the expected correction that bull markets go through around that time frame. We are now into the second phase of the commodity bull. Take a look at that long term chart of the Dow again and you will get an idea of how long the second phase can last. Folks the second phase of the commodity bull is just getting started. We will see another very scary correction sometime in the future and everyone will think the bull is dead. However it will recover quickly and then the public will start to come into the market in droves. This will be the 3rd and final phase of the bull. We saw this correction in 98 in the form of the LTCM crisis. As I've noted previously during this final phase you will have about 1 - 1 1/2 years as the markets turn parabolic. After that it will be time to get out and go looking for the next bull which will of course be in paper assets again. This is just how the cycles work. At the moment commodities are so undervalued it's ridiculous. They only seem expensive because we are comparing them to the last 25 years of bear market pricing. Bull markets tend to increase values whether they be stocks or commodities by 1000-2000%. the stock market went from 600 to 11750 during the last bull. That's almost 2000%. Gold is only up a little over 300%. We haven't seen anything yet. So you can decide to take this once in a lifetime opportunity and get rich or you can listen to that little negative voice in your head and blow the greatest chance at financial freedom that many of us will ever see. It's your choice.