Commodities Next

Commodities next elevator down!!! I kind of said this would happen but was off around a month too early. Speculation in the commodities markets have been on a rampage for a few months especially since fast money has been playing Oil, Gold, and the grains. Today say the first meaningful crack in GOLD, down $60 should be the first of it. I said it a few days ago when Cramer spoke about Gold going to 1600, I said I bet it reaches 875/850 before it reaches $1100, well lets see what happens.
One thing I am trying to teach on this blog is that of crowding trades.
Crowding trades refers to the act of too many players in one sector play. What happens is like having a party with the same size cake but inviting more people will lead to everyone getting a smaller and smaller slice of cake. This is how bubbles are formed and busted. Right now I have no doubt some commodities are in bubble territory and my main one is GOLD. Oil I think will get a pullback but Oil will go higher longer term as population and industrial growth increases. One other area of commodities I think is in a bubble is fertilizer and wheat and based on this I am shorting some of the high flyers in these sectors.
This evening I took puts on POT and CF but it was very almost at the closing bell so I didn't post on the blog. I will see how they work tomorrow and if they trade down I will initiate a TRADE CALL on them officially. One other reason for the selling of these stocks is of the deleveraging of the financial risks in the market.
There was talk today that Lehman picked up a bunch of Bear Stearns business and some prime brokerage was a part of it. Prime brokerage is the part of the business that for a big part, services hedge funds. Hedge funds crave leverage ( Carlyle Group received $35 for every dollar they had under management) That ended in bankruptcy this week. The conversation that Lehman had with hedge funds today, only guessing,went something like this, "we'll do business with you but in this environment the leverage we will give you is going to be much less than what your used to." When your prime broker has this conversation with you, one of the options is to start selling and reducing exposure, especially your winners, you know the positions you owned on 8 to leverage. That is one of the reasons for the unwinding in commodities today and I really feel it has only just begun.