Is the commodity bull about to start running again? That’s one of the most contentious questions on Wall Street.
Some investors say demand from emerging nations will spark a new rally in oil, corn, metals and other “stuff” like nothing we’ve ever seen. Others argue that another commodities explosion won’t happen anytime soon because global growth was sorely overestimated.
Euphoria Of The Past
It’s widely believed that hedge funds fueled the recent euphoria in commodities after the market’s last leg down in 2000. Big money institutional investors such as pension funds followed them in and gains accelerated. Many commodity prices hit record highs in July, despite signs of economic trouble ahead.
In the days since, large cutbacks have been announced in the production of aluminum, used in transport and packaging, and in nickel and zinc, key ingredients for the steel industry.
Producers of copper used in power and construction have been slower off the mark, but they could follow as growth stagnates in developed countries and slows in the emerging world.
The battering commodity markets have taken over the past 6 months or so can be seen in the PowerShares DB Com Indx Trckng Fund, which you seeabove.
"The lower prices go and the longer they stay low, the bigger the next boom will be," says Stephen Briggs, analyst at RBS Global Banking & Markets.
He adds that when the global economy returns to trend growth -- between 3.25 and 3.5 percent -- the mismatch between demand and supply will once again dominate sentiment.
But that's the long term out look. However, there are plays in the space right now.
Fast Money Trades
Commodities trader Joe Terranova tells us that he's bullish on some stocks in the XLE. “I think in 2009 investors will pay premiums for companies that have high levels of cash and low levels of debt. Exxon Mobil is an example of that.”
But Terranova warns investors not to play commodities directly. “In the past we’ve had significant January sell-offs.”
"I’d play iron ore," counters Tim Seymour, who likes this metal because it's controlled by oligopolies. "Look at BHP Billiton and Vale ," Seymour counsels.
"Or check out natural gas," adds Karen Finerman. "You can play it with Devon or Dynegy. "
Terranova agrees with Finerman and adds, "(But) I think EOG Resources is the best way to play nat gas."
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Trader disclosure: On Dec. 10th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (SDS), (MSFT), (WMT), (MCD); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (AAPL), (BAC), (F), (MER); Seygem Asset Management Owns (EEM), (FXI), (RIO); Finerman's Firm Owns (DSX), (DEO), (MSFT), (MO), (PM), (RAI), (DVN), (DYN; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (COF), (GNK), (SPG), (USO); GE Is The Parent Company Of CNBC
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO: Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (OFC), (DLR), (EXR), (IGE), (MAC), (DBC), (DBV), (SKT), (UA); Virtus Investment Partners Owns More Than 1% Of (CLB); Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights