The commodity bubble. You cannot discuss it without discussing China. This emerging economy is craving commodities and assets from all around the world. The same cries that drive every bubble are there - "this time is different". The numbers support it. Hundreds of millions of Chinese are moving from an agrarian world to the cities, from the village to huge Hong Kong-like cities, from being low income producers to high income consumers, from consuming 1/40th the oil of the average American to a level much higher.
But, economies don't emerge overnight. They don't change from one extreme to the other in an instant. China has had tremendous growth as a result of a massive experiment - that of a free market within a totalitarian economy. As such, the government has acted as a buffer between the economic realitiies and the wealth that local leaders have hoped to create. At some point, the Chinese government will no longer be able to backstop the Chinese market, to subsidize oil and to maintain growth (or even the impression of growth) at such extraordinary levels.
Markets always have cycles. This cycle couldn't break before the Olympics. China will certainly show its best face at the Olympics and those who visit or watch on TV will be amazed. But, in the aftermath, everyone will realize that there isn't a second Olympics, and that the Chinese economy like every economy is cyclical. Most importantly, we will realize that just a China has become part of a global economy, it is not immune from the current downcycle.
Our long term commodity, and obviously particularly oil problems, are real. They are not going away, but will probably become more pronounced over time. But, barring a supply disruption from Venezuela or Iran over the next few weeks, we may be about to get some relief.
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