June 19, 2008

Commodities: The next bubble?

For anyone with potential exposure to commodities via direct holdings, ETFs or Mutual Funds, below is a very good article about a potential bubble scenario for commodities.

Please read the full article here: http://www.schwabinsights.com/articles/?article=00025018

Earlier this month, George Soros, the famous hedge fund manager and founder of the Quantum fund testifying before a Senate Committee, noted that “the investment flood into commodity indexes bears eerie similarities to the craze for portfolio insurance that led to the stock-market crash of 1987”. Soros warned that the rush into oil has created a “bubble” and that commodities should not be considered an asset class in its own right.

Particularly those investors with a high asset concentration in commodities such as oil, energy and related stocks should consider a downside protection.

I can only second many of the comments in this article and definitely recommend not to overexpose at a time when volatility in the markets is still very high.

Happy reading, be well and stay diversified!