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Wednesday, September 13, 2006

Commodity Bears Beware!

By William Trent, CFA of Stock Market Beat

The Contrary Indicator has spoken!

“The mega-run for commodities has run its course,” Stephen Roach, the New York-based chief global economist at Morgan Stanley, the world’s biggest securities firm said in a Sept. 5 interview. Roach in May said the surge in oil and metals was a bubble about to pop.

Since then, the Reuters/Jefferies CRB Futures Price Index has fallen 12 percent from a record, more than enough to qualify as the first so-called correction since the rally began in 2001. The Goldman Sachs Commodity Index, after gaining for four years, has lost investors 5.1 percent in 2006. Gold and sugar already are in a bear market, defined as a price drop of 20 percent.

Stock investors remember Roach’s bearishness for several years, during which time he complained that too-loose Federal Reserve policy was creating numerous echo-bubbles around the world. He was, of course, correct. The problem is, he was years too early and then capitulated approximately one month before the housing market began to. The author may hold a position in the securities discussed.

A current list of the author's holdings is available here.

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