Monday, April 04, 2005

The chicken or the egg?

I've read Donald Luskin's stuff and I find him interesting, if not top tier.

His title, "Hundred Dollar Oil My Foot", has a certain refreshing directness though doesn't it?

He's calling for a top in the commodities, but it sounds like he's talking an intermediate term top because he mentions buying them back later.


It's not just oil. I feel the same way about other commodities like gold, metals, foodstuffs and all the basic materials. Energy and basic materials have been the best performing sectors by a long shot during this bull market. But that's over. I'm calling the top. Without accelerating inflation pumping up prices, those sectors are going to have to make it on the merits just like any other, from here on out.

So I'm looking for opportunities to sell winners in the energy and basic materials sectors, and there have been some big ones in both. But if I'm right about all this, there may be an opportunity to buy them back cheaper at some point later this year.

There's also a tad of a hole in his logic, me thinks. Rises in commodity prices can cause accelerating inflation. Which came first? So far, the pass through from oil prices to other items has been lower than the rise in oil. Not for long though.