Commodities Bubble?

There are many fundamental reason for the high commodity prices like biofuel subsidies, growing demand in Asia, supply restraints for oil, and a weak dollar.

The major problem I have with the fundamental story is that we are experiencing a global slowdown, yet these prices are just going through the roof. This just doesn't make sense because the slowdown should decrease demand for commodities. I would expect oil at $80 a barrel in these conditions, but at $116 in a slowing economy, financial speculation has to take part of the blame.

The only safe place to park your money today is commodities. Real estate is declining, treasuries are overvalued, stocks are heading down and inflation is eating away your cash. You listen to CNBC, and that's the only sector that's hot and is where all the smart money is heading. People who never invested in commodities are doing so, which is a sign that a bubble is brewing.

Commodities are different from other assets in the fact that they have immediate intrinsic value. Stocks are just pieces of paper and we can hold off buying a house if prices are too high. You have to but gas in your car and buy food. There is no way to avoid the effects.

This can create some crazy feedback effects. Higher commodity prices hurt business's profit margins lowering the incentives to put your money into stocks, making the commodity bet even better. Higher food and gas prices causes inflation which increases the value of the commodity. This feedback loop could make things worst before there can get better when this unsustainable feedback finally loses its momentum.

I hope this pops sooner than later so that are economy can be back in balances, so our investors can chase after the next bubble.