Let’s not all run out and start wasting oil and commodities already.  All commodities from oil to natural gas to corn to copper has dropped precipitously the last month or so.  Now we are hearing some people recommended natural gas under $9 but there seems to still be a huge bearish on oil.  There is also seemingly some noise about agriculture and metals.

Ok let’s look at oil first.  Do we still need oil?  Yes.  Are there alternatives?  Absolutely.  Actually there are tons of alternatives.  The list is endless.  Did anyone ever hear of the electric cars?  What about natural gas vehicles?  What about hydrogen cars?  What about just electric cars powered from power from wind or solar?  Oh wait what about ethanol based cars?  Ok it seems there are a lot of options but gas is no longer king.  It may run for one last march but it’s days are over.  Keep in mind that this will not be a quick transition.  Long term, the growth of other energy such as coal, natural gas, ethanol, solar, and wind will come at the expensive of petroleum.

Ok let’s look at agricultural commodities.  Do we still need food?  Yes.  Are the alternatives to food?  Well, no food is food.  With the growing population, food will be more and more in demand.  In fact in many parts of the world, there is a shortage.  Is food becoming more difficult to obtain?  Well no and yes.  Technologically, we’ll grow more but global warming is changing the game as areas that used to be good for certain foods are no longer available.  The growing preference for better foods and meat will drive food demand all over the world.  The world is fast becoming middle class.  So is the story for corns, soybeans and pork bellies over.  Not by a long shot.

Ok let’s look at metals.  All the steel, copper, and metals stocks were devastated the last few days.  Cleveland Cliff hit $88 and Freeport McMomoran hit $76, resulting in PEs of under 6!!!!  Of course the market realized the errors of it’s ways because now CLF is at $95 and FCX is at $87.  But is demand for metals really dropping?  Let’s take a real life example.  Steel price contract were renewed at more than 60% higher prices.  That doesn’t sound like demand destruction.  In fact that is a real life justification of higher demand.  Is finding oil easier or mining a precious metal.  For oil, we can just drill deeper but for mines, we can’t dig much deeper because unlike a liquid, it’s difficult to bring to the top.  Huts and shacks are out, condos and buildings are in!!!!  So long term, it seems that we still need metals.

There are two drives for the market right now – oil and financials.  Keep those in mind while trying.

Disclosure: Long: CHK, MON   Short: MAN, COF