bubbles
Posted at 8:48am on Apr. 19, 2008 Commodity-Price Bubble
The Financial World Gets Weirder And Weirder
By blackhedd
Of all the tangled and intertwined threads of the global financial crisis, a few have managed to capture the attention of the media and of people at large. Collapsing home values, of course. More surprisingly, the arcane and technical collapse of the Bear Stearns Companies, and the aggressive response by the Federal Reserve, which was called a “bailout” so many times that people now believe it was one.
And then there’s commodity-price inflation, which is a global phenomenon with many contributing factors. Most people don’t notice the prices of gold, silver, dry-bulk cargo holds, concrete, nickel, copper and scrap steel. But they certainly do notice gasoline, jet fuel, rice, milk, wheat, corn and cooking oil.
In a further display of how interrelated everything has become, commodity prices, already facing upward pressure from fundamentals (increased demand from Asia coupled with supply disruptions), have gotten caught up in the mess affecting the credit markets.
As a result, I now believe that many commodities are experiencing a price bubble, much like the stock-market bubble of 1999-2000 and the housing bubble of 2004-2006.
Price bubbles are inherently unstable, which means they always bust. They’re also inherently insane, which means they can go a lot farther before they do bust.
Where is the financial (i.e., the non-fundamental) pressure on commodity prices coming from? Let’s unpack it a little.
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