Front Page News: Global food riots & Predictions of $250 oil... Classic Top?

Discussion in 'Ag Futures' started by Rearden Metal, Apr 27, 2008.

  1. You all know about the classic contrarian indicator, stating that whenever X-Trend becomes a screaming front page headline, the top is always near.

    <b>So how about right now?</b> Wal-Mart rationing rice due to panicking food hoarders, food riots spreading across the globe, mainstream financial firms predicting $250 oil and nobody laughs, etc. Looks like a classic commodities top to me. The U.S. gov't abandoning its disastrous corn-to-fuel ethanol scam is all it would take to send grain prices tumbling.

    Your thoughts?
  2. Well, wheat and beans are WAY off their highs, soft commodities have been fucked since early march, precious metals are weak and gold is off 15%. With the exception of energy and rice, the top was *already put in*. And this is in the face of a falling dollar too, which should be good for commodities.

    Feb/march was a classic medium-term blowoff top in most commodities. Energy and rice are really the only strong commodities left that are making new highs. Both are facing short-term supply issues.

    Basically I think commodities got too popular and need like 6-12 months of crap performance so everyone gets bored of them and gives up. Then it will be time to get back in again. I see it as a rerun of Spring 2006 where there was lots of bullishness on commodities - you then had a 1 year correction in oil, gold, copper etc, everything that had gone up loads.

    The reasons I don't think it's a secular top are:

    1) bullishness has not got high enough. For a secular top you need commodities to be like tech stocks circa early 2000 - insane volume, the whole country (not just traders and wannabe traders) trading them, huge waves of IPOs at ridiculous prices with huge 1-day pops, blue chip commodity firms trading at truly insane P/E multiples (50+ for blue chips, 200-300+ for speculative ones) etc.

    2) the inflation-adjust prices of most commodities are way below their 1970s-1980 highs.

    3) the bear market lasted 20-25 years. This bull is less than a decade old. Commodity bull cycles normally last 10 years minimum and usually longer.

    I think something like Minnie wheat may have made a long-term high. But not soft commodities like sugar, coffee, cotton, cocoa etc. I think this top will be something like the top in 1990 in stocks - you will get a hefty pullback (which has already occured to a large extent) but once that is over, the long-term trend still has plenty to go.