Soapy bubble or opportunity of a lifetime?

Steven Pearlstein at the Daily Stox Report writes:

"The global financial system these days is beginning to look like a giant Whack-a-Mole game: When we think we've knocked down one speculative bubble, another one just like it pops up. The latest is the commodities bubble is everything from oil and natural gas to gold, copper, wheat and rice. But what turned a bull market into a bubble was the sudden arrival of large numbers of new investors and an array of new investment vehicles, many of them involving derivative instruments traded outside the confines of regulated markets.

"Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-users.

"Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. Others -- including, it is said, some sovereign wealth funds -- looked to commodities as a hedge against the falling dollar. But perhaps the biggest push came from pension funds, foundations and university endowments whose managers had all gone to the same conferences and read the same academic papers, suggesting that a basket of commodity futures would provide a good hedge against stock and bond market declines.

"To meet the needs of these investors, Wall Street and Chicago's commodities houses came up with all sorts of new vehicles, including exchange traded funds, index funds and structured investment vehicles -- the commodities equivalent of mortgage pools and asset-backed securities.

Trevor Williams at sees it differently: "Our view is that there is little or no evidence to support the view that it is investment flows that have primarily driven up commodity prices or that there is a bubble developing. It is true that more funds have been set up to invest in commodities, creating more liquid markets in goods that are now in much greater demand, but no signs of the trillions of dollars that drove the credit cycle or the boom in the 1990s. Further, there is little to suggest that these markets are in bubble territory anyway, i.e. a situation in which prices are so far above fundamentals or their own long run performance as to be unsustainable."

Then there's a poll over at asking readers their long-term view on commodities. With 97 respondents, 16 percent responded that this is just the latest in a series of bubbles and 84 percent said "in 5 years we are going to wish we could buy at these prices."

A million well-dressed monkeys can't be wrong.