dot-com bubble
There is an interesting quandary arising for investors. We have had a rather massive run-up in various commodities as shown and discussed in this Market Ticker by Karl Denninger. As Mr. Denninger points out, the graphs have parabolic qualities.
As he observes:
For those who are short in the memory department, parabolic charts nearly always end in tears. Indeed, if you think these won’t, your challenge is to go find some that haven’t – then ponder the odds……
Everything that he suggests about parabolas is true. Parabolas always accompany bubbles. Yet, matters are hardly ever so simple.
Is it possible that the graphs are showing the beginnings of an explosion in inflation? That would certainly be consistent with monetary theory, given what Mr. Bernanke has been up to. Or are we witnessing bubbles in various commodities?
It is difficult to know at this point because so much is dependent on whether QE2 is continued as QE3, 4 …. X.
My sense is that we are seeing the effects and the anticipated effects of coming inflation. I believe that the US Government has no choice but to continue to monetize the debt. Who would be foolish enough to buy it?
Despite this belief, these markets are both volatile and dangerous. Even if QE continues, it doesn’t mean that wide swings in expectations won’t produce rather large corrections. Even being on the right side of the trend can be costly in short-term corrections that characterize commodity markets.
