The Commodities Bubble

Hi! I am Mark Sfiligoj and this is your Kiplinger Business forecast. That loud pop followed by a sharp hiss is the sound of the commodity bubble bursting. Un-sustainably high prices of oil, many metals, corn, soybeans and other farm crops driven up bu investors chasing big returns are way out of lack with a dynamics of supply and demand and the day of reckoning is not far off.

We believe that the balloon will deflate by mid summer or so. A number of factors could do an end. A big cut and worldwide commodity demand. Big stock market gains, attain in inflation report and the more stable dollar.

Prices will drop by about 30% if all these factors come into play at once. But the clients will be smaller and more gradual, if signals are mixed. Oil will slide to about $85 a barrel, but reductions at the pump will be smaller, because risk is still a factor.

In any case, the bottom isn't going to fall out of the commodities market. Supplies will remain tight and demand for many products will remain high, particularly with growth in China and elsewhere

The bubbles pop will be good for many businesses and for other regular buyers of commodities. So put off any major purchases if you can. The pain will be limited to big speculators and small investors who failed to diversify plus producers who will loose outsize profits.

This has been your Kiplinger Business forecast. I am Mark Sfiligoj.


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