Wednesday, May 28, 2008
Aside from the remarkable surety with which many analysts are now able to identify a "commodities bubble" in real-time, a feat that seemed impossible for both the stock market bubble and the housing bubble just a few year ago, the one part of the "commodities bubble" discussion that seems most ill-reasoned these days is the eagerness to pop it.
Most "popping " proponents cite the burden imposed on Americans, blaming "speculators" for the recent price increases of food and energy.
But, Americans have endured pain before - this is not the first time that gasoline and grocery prices have surged and we've all survived.
And besides, the government says inflation is only four percent - we've had much worse inflation in the past.
Some say a little adversity makes you stronger and if there's one thing we American's haven't had over the last ten years or so, it's adversity.
Where else could nearly half the country grow wealthy beyond their wildest dreams simply by owning a house? (Of course, that seems to be changing now.)
And at what other time could a nation fight a war abroad while its leaders at home slashed taxes and encouraged the masses to support the effort by spending more money?
Because of the soaring cost of food and energy, we've all had to cut back a little bit on a temporary basis but, like every other time in the past, prices should moderate in a little while and things should pretty much return to normal.
Those evil "pension fund speculators"
As for the commodity "speculators" - pension funds, hedge funds, endowment funds, and retail investors who purportedly just seek to maximize their investment gains during a time of meager returns for both stocks and bonds - why is there such concern to stop them from bidding prices higher?
Surely oil at $130 a barrel and gasoline at $4 a gallon can't last.
If oil at $130 is largely the result of a speculative frenzy, with the "fundamental value" of the black goo not much more than half that amount, when prices take their inevitable nose-dive, speculators will get their comeuppance and the entire nation can go back to driving gas-guzzling SUVs.
The nascent "commodities bubble popping" mania seems almost as if it's an attempt to "protect" the speculators from doing any more potential harm to themselves.
In recent decades, it has not been the role of the U.S. government to step in and protect speculators from doing harm to themselves.
Quite the opposite, actually.
Besides, think of all the teachers in California, Pennsylvania, and elsewhere whose pensions are more sound as a result of their fund managers diversifying their investment portfolios to better withstand the ups and downs from year to year.
Think of how the income stream of retired teachers may suffer as a result of heavy-handed action by the government to stop these "pension fund speculators" in their tracks.
If this "speculative bubble in commodities" is just like every other bubble over the last few decades, it will meet its pin and those who dabbled in natural resource investments will get their fingers burned just like those who bought Pets.com in 1999 and Miami condos in 2005.
What's everyone worrying about with these "commodity speculators" anyway.