BCA: Changing Commodity Behavior

If you don't check out the free Bank Credit Analyst postings and you are interested in markets you are missing out! This post is on changing behavior in commodity markets:

The changing behavior of commodity investors and speculators increases our conviction that the asset class is on an eventual path toward a mania-like overshoot.

Large institutions adding commodities as a long only asset class because they don't correllate to bonds and equities and thus smooth returns has led to huge amounts of money coming in to these markets. Twenty years of relatively depressed prices in many physical commodities is being made up in a short period of time. Unfortunately this coincides with explosive demand growth from populous emerging economies and ill conceived programs like ethanol from corn.
I believe this can continue for awhile for 3 reasons:
1. China, India and others are going to continue to grow.
2. The institution who have moved into commodities have profited so others will join in like lemmings.
3. There is still doubt and disbelief among market participants shocked by the price levels. If we are going to experience commodity mania in the next few years we will see certainty and inevitability when it comes to the possibility of higher prices.