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Commodities Are Hot, S&P… Not!
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Thursday, 10 April 2008

The CRB Soars while the S&P 500 stalls
Check out a chart showing the Q1 2008 action in the CRB Index, a widely tracked basket of 19 leading commodities, versus the S&P 500 from the beginning of the first quarter through Tuesday.
The CRB Index is up 11% during that time frame. Meanwhile, the S&P is down over 7%. OUCH! Which would you rather invest in?

Investors are asking themselves this question and voting with their funds. According to a report just released by Citigroup, global investments in commodities rose by more than 20% in the first quarter to $400 billion, helping boost prices as investors sought protection against inflation and a weaker dollar.

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The report says that investments in commodity indexes rose $40 billion in the first three months of the year to $185 billion, a larger gain than the whole of 2007.

A “tidal wave of investment flows into commodity markets has further boosted prices,'' the Citigroup analysts said, quoted by Bloomberg News. “The weakening U.S. dollar has been the main macro force attracting funds to commodity markets. Other contributors are falling real interest rates and inflation worries.”

How do we square the strong rallies we’re seeing in oil, gold, grains and basic materials with forecasts some are making for a global recession? Answer: Somebody is obviously wrong. You can’t have demand and prices soaring at the same time that a global recession is taking place. Our solution is to follow the money -- and bet on commodities. We think the next tidal wave of wealth pouring into commodities could be a real doozy.

Yours for trading profits,

Black Bear
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