“I’m forever blowing bubbles, pretty bubbles in the air. They fly so high, nearly reach the sky, then just like my dreams they fade and die…..” is the favoured chant of West Ham football fans. Many years ago I taught at a school close to the football ground and would often hear the fans singing this song. For those of you not familiar with football (or soccer) West Ham football club has a reputation of tearing to shreds the nerves of its fan base, taking their emotions on a never ending roller coaster ride. Pretty much like the financial markets at the moment where the commodity sector is the next bubble just waiting to burst.
As the eyes of the world continue to fixate on the price of oil – $132 today, and our good friends at Goldman Sachs predicting $141 by year end and even on to $200, it is clear from the charts that a “correction” is due any time soon. This relentless rise has been a combination of increasing demand, speculation as well as investors desperate to find alternatives to the equity markets. It is not just oil which has seen stellar price rises – the soft commodities too have benefited from a massive increase in investment from both individuals and funds.
As usual the bulk of the money pouring into this sector has come in at the top which is why this is the next bubble to burst. It goes without saying that while successful investment does depend on focusing on the big trends to ensure success and market timing is an imprecise art, the rush into this particular sector smacks more of desperation than cool judgment. If it is any comfort even the great Sir Isaac Newton who lost £20,000 in the South Sea Bubble fiasco wrote in 1721: “”I can calculate the motions of heavenly bodies, but not the madness of people,”
Apologies for not posting for some weeks – this is been due to more sites being launched and last week a very interesting trip to Sicily – see my currency blog for more details:
