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Investorsin commodities and related listed stocks and futures continue to take extraordinarystaged bets; in the past 12 months, on everything from wheat and rice touranium and potash.  

Insidethe ongoing rotations, two major themes remain intact. First, the splurge ofliquidity creation triggered by the US subprime crisisexplosion in August 2007 may well be flooring out, taking even more shine off"crisis" plays, typically precious metals and grains futures. Second, there isongoing evidence that the demand for raw materials continues apace, withemerging markets, led by China, more than compensatingfor the slowdown in the US economy.

Portfolioflows among global resources sectors continue as always to be partly motivatedby short-term factors (such as major labour strikes, power outages, naturaldisasters, and so on), but underlying longer term factors cannot be ignored. Thedollar continues to exert major influence on dollar commodity prices, and withsome signs that US credit markets are atleast stabilizing, the dollar is likely to consolidate sideways for theforeseeable future.  

Theonset of the dollar bear market in early 2002 coincided with the onset of the commoditiessupercycle. From a macro perspective, the Bank Credit Analyst has identifiedthree distinct phases in the six year commodities bull market.

First, the 2003/04 "Outof Deflation" Phase, where a moderate but broadly-based uptrend involved allfour main commodity sectors (energy, mining, grains and precious metals). Thedriving force was the emergence from the deflation spurred by a burst TMTbubble on the NASDAQ, and the 9/11 terrorist attacks. Global economic growthrebounded but monetary settings stayed expansionary. The uptrend was moderatedby fears of yet another "false start", as occurred repeatedly during theprevious two-decade commodity bear. 

Second, the 2005/06"Shift in China Consensus" Phase, where BCA Research notes that violentrotational surges saw industrial metals vastly outperform. The consensus viewtowards China shifted from worryingabout financial, social and economic collapse to buying the structural bullcase of low inflation and strong growth. Most commodities benefited from thisshift, but the big winners were economically-sensitive metals that China needed.

Third, the 2007/08 "BurstUS Housing/Finance Bubble" Phase, where precious metals, grains and, morerecently, energy, outperformed. This reflected surging demand for hedgesagainst inflation, financial stress and dollar debasement; the Federal Reserve,the US central bank, floodedthe system with liquidity to offset the burst housing bubble.

In general, cyclicalcommodities such as copper and lumber dramatically underperformed "crisishedges" such as gold and silver. A synchronized global recovery, structural China bull story and US dollarbear market were discounted in just five years. 

Looking at listed stocksin mining and also oil, the performances of more than 500 names over the past12 months indicates major portfolio flows into potash, iron ore and coal, and,more recently, once again into oil stocks. Listed stocks in precious metals andalso base metals have been the losers. Listed uranium stocks, the recipient ofa specific commodities mania peaking in mid-2007, have taken a hammering.

The current leaders inlisted stock price returns over the past 12 months are all involved in bulkcommodities - potash, iron ore and coal. While these may be regarded by some ascyclical laggards, the huge margin expansion achieved by these commodities inrecent years is consistent with the mega themes that underpinned earlier sub-sectorrotational stars during the ongoing bull market. Dominant diversified stocksthat produce a combination of the more recent attractions are typicallycurrently trading close to record highs. 

Investorsin commodities and related listed stocks and futures continue to take extraordinarystaged bets; in the past 12 months, on everything from wheat and rice touranium and potash.

Insidethe ongoing rotations, two major themes remain intact. First, the splurge ofliquidity creation triggered by the US subprime crisisexplosion in August 2007 may well be flooring out, taking even more shine off"crisis" plays, typically precious metals and grains futures. Second, there isongoing evidence that the demand for raw materials continues apace, withemerging markets, led by China, more than compensatingfor the slowdown in the US economy.  

Portfolioflows among global resources sectors continue as always to be partly motivatedby short-term factors (such as major labour strikes, power outages, naturaldisasters, and so on), but underlying longer term factors cannot be ignored. Thedollar continues to exert major influence on dollar commodity prices, and withsome signs that US credit markets are atleast stabilizing, the dollar is likely to consolidate sideways for theforeseeable future.

Theonset of the dollar bear market in early 2002 coincided with the onset of the commoditiessupercycle. From a macro perspective, the Bank Credit Analyst has identifiedthree distinct phases in the six year commodities bull market. 

First, the 2003/04 "Outof Deflation" Phase, where a moderate but broadly-based uptrend involved allfour main commodity sectors (energy, mining, grains and precious metals). Thedriving force was the emergence from the deflation spurred by a burst TMTbubble on the NASDAQ, and the 9/11 terrorist attacks. Global economic growthrebounded but monetary settings stayed expansionary. The uptrend was moderatedby fears of yet another "false start", as occurred repeatedly during theprevious two-decade commodity bear. 

Second, the 2005/06"Shift in China Consensus" Phase, where BCA Research notes that violentrotational surges saw industrial metals vastly outperform. The consensus viewtowards China shifted from worryingabout financial, social and economic collapse to buying the structural bullcase of low inflation and strong growth. Most commodities benefited from thisshift, but the big winners were economically-sensitive metals that China needed.

Third, the 2007/08 "BurstUS Housing/Finance Bubble" Phase, where precious metals, grains and, morerecently, energy, outperformed. This reflected surging demand for hedgesagainst inflation, financial stress and dollar debasement; the Federal Reserve,the US central bank, floodedthe system with liquidity to offset the burst housing bubble.  

In general, cyclicalcommodities such as copper and lumber dramatically underperformed "crisishedges" such as gold and silver. A synchronized global recovery, structural China bull story and US dollarbear market were discounted in just five years.

Looking at listed stocksin mining and also oil, the performances of more than 500 names over the past12 months indicates major portfolio flows into potash, iron ore and coal, and,more recently, once again into oil stocks. Listed stocks in precious metals andalso base metals have been the losers. Listed uranium stocks, the recipient ofa specific commodities mania peaking in mid-2007, have taken a hammering.

The current leaders inlisted stock price returns over the past 12 months are all involved in bulkcommodities - potash, iron ore and coal. While these may be regarded by some ascyclical laggards, the huge margin expansion achieved by these commodities inrecent years is consistent with the mega themes that underpinned earlier sub-sectorrotational stars during the ongoing bull market. Dominant diversified stocksthat produce a combination of the more recent attractions are typicallycurrently trading close to record highs.