The End Of The Commodity Bubble

First, our thoughts are with all those impacted by the Japanese earthquake – the seeming too-common occurrence of disasters does nothing to diminish their import.

The world was already awash with rising risks but this new disaster is likely to become a seminal event in changing people’s attitudes to risk. The magnitude and breadth of the problems now facing the world’s third largest economy will see to that.

Looking at today’s price action in Australian equities, it looks like the disaster may be the catalyst to break the increasingly surreal rise in prices across the commodity complex.

map

We offer this market map as a reference point – as we have reviewed before (20Aug10 here), the rise of the materials sector in market weighting has only been matched by the rise of their anemic cousins in the banking system.

Given that we have sunk our anchors deep into the unending China industrialisation growth story, it will take some time for investors to adjust to the idea that the world really is a risky place and ratchet back on lofty commodity valuations accordingly. But it’s unlikely that even the Fed will be able to stem this flow.

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