Street Grows Ever More Cautious Of Commodities Bubble

It appears the Street is growing ever more cautious of commodities.

First Fast Money executive producer John Melloy tells us prices for gold, copper and oil could end next year right where they are now, (in his post Wall Street Strategists: Commodity Bull to End in 2011 ) and now we're hearing this.

Fast producer Catherine Holahan tells us, on the eve of the New Year, the Fast Money traders were cautiously watching the commodities market for signs that soaring prices were fueled more by investor speculation than real demand.

“You are seeing commodity inflation everywhere,” said Short Hills Capital’s Stephen Weiss. “I don’t think it’s all driven by China.”

Weiss sees a commodity bubble bursting in the second half of 2011. Commodity prices have run-up too far on investor theories about insatiable China’s thirst for raw goods, rather than real supply and demand dynamics, he said. “The Chinese have been phenomenal traders,” Weiss added. “They will step back at some point and that is where the bubble bursts.”

Brian Kelly was also surveying the commodity markets into 2011.

However, he saw more reason for demand to outstrip supply, at least in the short-run. Heavy rains continued to swell rivers in Australia, devastating crops and shutting down the continent’s coalmines and ports. Shipments of coal and sugar were disrupted as the Australian’s celebrated the New Year, leading Australia’s stock market to sell-off. “There are more storms in Australia that will impact the commodities space,” said Kanundrum Capital’s founder, adding, “I would stay on copper , cotton and maybe try some of the laggards too.”

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Kelly was also watching the recent bubble burst in the housing market. Housing, he said, should be, “A number one on every investors’ radar and a number one on the government’s radar,” said Kelly. “If you can’t sell your house, you can’t get a job at another location.”

JJ Kinahan, TD Ameritrade’s Chief Derivatives strategist, cautioned that the sun-belt states could be facing another crash as more homes come on the market. “They haven’t worked their way through the foreclosure pipeline,” cautioned Kinahan.

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