A commodity ETF is essentially a securitization of a physical resource, and subject to the same bubble and crash phenomenom as any security. I do not think that over the long run traders, pension fund, retail, and long only funds can keep commodity prices artificially high, but the oil bull run in 2007-2008 suggests that they can keep up the momentum for many months in the absence of any real fundamental support. That could be repeated.
One of the most interesting ways commodity markets are distorted by ETF's is long bias of ETF's: "shorting an ETF does not result in a reduction of open interest in the futures market, since when one shorts a security they are actually borrowing the security. Rather, the ETF remains long the underlying position." ma-research.com
Already crude @ $60 is more of a bubble in this economy than crude @100 in the economy of 2008, but buyers here are attempting to discount an economic rebound + continued OPEC constraint. It's a bit of the greater fool theory, but one that's profitable and difficult to reverse. I'm not sure what will stop oil here, as the raw s/d picture is probably good for $30-$40 oil.
The BDI is interesting, but not perfect as it also can reflect oversupply or undersupply of the ships themselves as much as it reflects demand for transport. But significant swings in the BDI shouldn't be ignored.
Still some way undervalued small cap E&P's out there, I been buying chunks of DBLE over the past few days. Rocky Mountain Express opening to Ohio soon, CIG prices should stay more in lockstep with the rest of the country. |
