Wall Street Manna

An irreverent look at Wall Street

Tuesday, February 19, 2008

Stocks are "commodities"

And commodities are commodities. And that's this market in a word. The markets have been "commoditized." Stocks are difficult to trade in this choppy environment. Commodities are easy to trade. The CRB continually makes new highs.

So the money, gravitates to where you can make money. And make it easier.

And the bull market in stocks, are where there are bull markets in commodities. But the capital chasing commodities, affects the input cost of companies. So the commodity goes up, and stocks go down.

A perfect example of this is the action in refiners. Gasoline prices went down, when oil was going up. But now that gasoline is being re-priced, the refiners bottom as they can raise prices at the pump to offset the input cost of oil. But the stocks had to be cut in half first!

Wheat has doubled. Does anybody think the price of cereal or bread is going to double? Do these companies have experience in the pricing environment that now exist?

When oil was going up, we heard that it was the action of speculators. But speculators go where the money is easiest to be made. And you have real buyers in commodities. It's the world trading, not just speculators in the pit.

Every week, billions of dollars gets yanked from stock funds. And every week, we have more financial players that want something tangible. The sub-prime fallout, the bad loans and CDO's, the fake AAA ratings, and the depleted balance sheets of the financial institutions have affected the liquidity of the market. So they go elsewhere.

And if the most liquid and largest market in commodities; oil, can hit a new high, what will happen to the rest?

And the market needs to price this in.

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