Beware of the commodities bubble. Think about house prices
I know, it's not automatic to make the connection between oil, food and energy prices and the housing bubble which is now bursting in the US, UK, Ireland and Spain. However, there are some strong indicators which suggest a pretty strong correlation.
Until a few months ago, housing, and related mortgage markets, were a huge market for investment banks, hedge funds, pension funds and small time investors (buy-to-let). When it started to collapse, all the liquidity created during the incredible race to the top of the bubble had to be shifted somewhere else. I'm talking about the "smart" money, the money of those who knew the bubble was about to burst and got out just in time. Of course massive losses have been widespread, we all know how bad it got with the sub-prime mortgages crisis, but at the same time, enormous profits were taken. So, where did this money go?
Oil, gold, commodities, food, energy.
Nothing other than speculation would justify such extreme increases as the one in oil price in such a short period of time. The same goes with food and commodities. Big players needed a new market. They found it.
This will keep getting worse until the big banks have fully restored their balance sheets. Which means guaranteed bubbles in commodities, oil and food. That, plus the premium put on risk when applying for credit for the general public, will squeeze every penny out of the consumers.I also expect the banks to ramp the above-mentioned markets and near the peak suck in small time investors and make the bubble burst, so that they totally screw them.The giant housing bubble is indeed bursting, but all the liquidity has been simply shifted somewhere else.
Just ensure you don't invest in oil too late.
Cheers
