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Commodities Bubble: 'Mirror Image' of Tech, Housing Booms, Says Schwab's Sonders

Posted May 22, 2008 02:24pm EDT by Aaron Task in Investing, Commodities, Recession
Related: XLE, OIL, OIH, DUG

"The relentless surge in commodities is becoming the next global crisis -- taking over from the credit crisis before that book is even closed," says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co.

I interviewed Liz Ann this morning as crude prices were surpassing $135 per barrel after The WSJ reported the International Energy Agency is preparing to dramatically slash its supply forecast, a nod to so-called peak oil theory.

But Sonders says fundamentals don't totally explain the recent ascent in crude prices -- which have since retreated intraday. Commodities are a "bubble in the making," she says, suggesting excessive speculation -- with parallels to the credit crisis are a big factor in oil's rise.

The good news (for those not long commodities) is "the speculation chapter of a mania story can close quickly," accrording to Sonders. Furthermore, "the characteristics of the commodity bubble are the mirror image of the recent housing and tech stock bubbles," she contends. "The commodities bubble inflicts its economic damage as it's inflating, but could become an economic tailwind as it's deflating."

Sonders takes a contarian view on energy stocks on a belief expectations have gotten to high for the sector, and sees a "new paradigm ahead" for commodities, the economy, and, ultimately, investors.

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