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A Word of Warning About Commodities


Commodities appear more attractive in rough times than in good times. But remember that booming commodities don't reflect their fundamentals alone.

These are the breeding-ground ingredients accompanying shifts from financial to hard assets, and we see it in everything from gold to oil to copper. Gold is an amazing story in itself, but numerous lesser-known commodities (11 of them, to be precise) outpaced gold's excellent performance during 2010:

Performance of Gold in 2010 Chart

No surprise then, many are talking about "commodity bubbles."

Are We in a Commodity Bubble?

Are commodity prices already overdone? Like everything else, it depends. Each commodity has its own story -- amply demonstrated by the chart above.

But let's return to Larry the Liquidator's fine speech for some guidance about market shares and expertise.

If you've confined yourself to losing your mind in euphoria of price appreciation, you're the bubble and it's in your head.

On the other hand, if you explore the wisdom of such things as rising shares in declining markets, then you're focusing on fundamentals and acting rationally and getting prepared for what makes sense in your future buying and selling decisions for any particular material or issue.

But most of all, remember this: Commodities appear sexier in rough times than in good times because they are investors' way of voting against currencies and financial assets (call it increased macro/micro ratio). The price action can be both startling and tremendous. But booming commodities don't reflect their fundamentals alone; they reflect a combination of those fundamentals and some quantity of premium that indicates a "no vote" on governments and financial systems. You want to cull out the noise and focus on fundamentals in order to make sense of what will otherwise be a distorted and misleading picture.

The Internet Treasure Trove -- It's Time to Try Some Sushi

I'm amazed by what's available in information thanks to the World Wide Web and the ubiquitous connectivity we've come to take for granted. And you don't need Julian Assange to get really good stuff. Google and a good vocabulary, along with knowing what you're looking for and why, is quite enough to keep you busy and well-informed.

One of the big problems with the Web that I've encountered -- and I suspect I'm not alone in this -- stems from "old habits die hard." I open the same tabs and windows almost every day. I need to. After all, I need to be informed about certain things and to stay up-to-date. That means I have eight or nine Yahoo Finance tabs open almost all the time, which collectively provide me the latest price and other information for a universe of 138 stocks and several indices. Covering all that stuff, I feel pretty informed and acquainted with the relevant important factors. That's not a good mood for inspiring "trying new things." You have to consciously try new things -- just like the day you worked up the nerve to have your first platter of sushi. Remember that?

So here's what I do to fight off the rut. I think about topics worthy of investigation. That's part of the reason I write for Minyanville.


Titanium is a perfect example. Because I'm interested in the company Titanium Metals Corp (TIE) and its stock, I decided to do some comprehensive "Googling." I focused on business cycles and industry consolidation.

Titanium is one of those things that sounds pretty sexy in the world of commodities. It's not a precious metal but it's a very useful one, and its many applications include other sexy subjects such as defense weaponry, aerospace, and advanced metal fabrication. These include spy planes, the Boeing (BA) 737 and 787, guided missiles, high-tech wiring and circuitry (including aspects of the smartphone genre).

Titanium's integration with carbon and other lightweight composites in aircraft (and other) manufacturing form another array of many other interesting and cutting-edge subjects. As an example, one might wonder whether composites could displace titanium. One day that might conceivably be a possibility but it isn't true now; in fact, for the present the use of one tends to increase the use of the other, and vice-versa. I'll skip the details of that interesting subject but it's out there to investigate on your own, and it's rather fascinating.

Too Sexy for My Shirt (As in, "Losing It")

Bottom line: Titanium is a sexy subject. And that's bad. Because when people start thinking about sex, they generally lose their minds and dismiss rationality. And that leads to stupidity and costly consequences. Where money is concerned, you don't want to do that.

Here are some very in-depth things I found looking into titanium, along with some brief comments about what I found.

The first is a press release from PR Newswire, not what I usually think of when I'm looking for in-depth information on a topic. Rules, however, are proven by their exceptions, to coin a phrase, and this exception, to paraphrase Fiorello LaGuardia, an idol of times past , is a beaut. In this case, PR Newswire is pitching a report titled "Titanium Metal: Market Outlook to 2015 (5th edition, 2010)" in a press release dated October 19, 2010. The press release is so comprehensive -- ironically, an attempt to tease the reader into a purchase -- I declined to order the report it hawks. Plus, I'm cheap, and the report, published by Roskill Information Services (UK), is 337 pages long.
No positions in stocks mentioned.

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