Commodities - What next?

Commodities have sky rocketed in the past 6 months as speculators bid prices to stratospheric heights. There isn't a day that goes by without a new ETF, index fund or mutual fund touting commodities. Prices are so far ahead of themselves that there is talk of the next bubble forming. Not that was until the Fed made noises about inflation and uncharacteristically let some of the air out before the bubble popped.

Of course, there is no way to read the "tea leaves" and make an accurate prediction. However, it's interesting to attempt to make sense of the future by observing investor behavior.

A chart from Barrons indicates that sophisticated investors, energy companies, food processors and farmers, shall we say smart money, are betting heavily against commodities. We think of them as smart money as they trade commodities on a daily basis and have an understanding of their markets. On the other hand, speculators who represent dumb money are hoping for a continuing boom. As with any bubble when too many such investors move in, it's time to head for the exits. I'm reminded of a story by a portfolio manager who once told me that when his mother called in to ask him what he thought about a high flying internet stock, it was his signal to sell.