Bubble Trouble

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May 03, 2008
John rogers shareholder letter: "Now the commodity bulls will argue that global demand, especially in China and India, is causing a secular change that has re-set commodity prices at a permanently high plateau. They say current prices are not only justified but only the beginning of a prolonged, upward march. "


"Our bearish counterargument starts with a basic point, best made by another money manager, Howard Marks, who recently wrote, “…‘it’s different this time.’ Those four little words are always heard when the market swings to dangerously high levels…it’s not just a sign of an absurd condition, it is a prerequisite.” Second, let’s look to history as a guide. In an insightful article entitled “Commodities Handle with Care,” Bernstein Wealth Management Research reported, “Over the last 50 years, commodity prices have grown at an average of +2.5% a year, well below the rate of infl ation.”5 Contrast this long-term return with recent commodity gains and one has to consider a reversion to the mean. Lastly, let’s not forget the speculators and their hand in the price madness. While everything from weather to war to growing demand can cause commodities to be in short supply, speculators also play an important role in surging prices."


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