"The trouble with most people is that they think with their hopes or fears or wishes rather than with their minds"
Will Durant

Ever since the "buy natural resources/sell financials" strategy driven by excess liquidity created by the "trigger happy" Federal Reserve went into mainstream last year, prices of most commodities and natural resources producing companies, seem to have left the realm of fundamentals and instead entered a whole new era of "buy tangible resources at any price" and "what went up recently will go much higher" strategies.

"The world could absorb all the steel, iron ore, corn, wheat, oil and gasoline produced in the world, virtually at any cost" or so said the media...The fact that growth of the US Economy has slowed to virtually nothing (ignore the noisy headline GDP tomorrow) never really seem to have bothered the "commodity" bulls.

Terms like "decoupling" of other emerging markets and "hundreds of millions of new Chinese and Indian middle class consumers entering the world economy" were thrown at anyone who had the unfortunate courage to question in any way the validity of $145 a barrel price of oil...

But the reality is always more crude to the loudest "screamers"- just like tech boom had to end some day, the "behavior-changing" $4 gasoline and corresponding drop in gasoline demand, seems to have finally overpowered the "world is running out of everything" stories. The commodity run now seems to quickly coming to it's conclusion- "super spike" break out followed by a violent drop...

I could certainly still turn out to be too early, but it does seem as if the Wall Street's "lemming-like" behavior, that has taken on some extreme forms with "momentum" strategies outperforming almost every strategy out there until very recently, is now rapidly swinging the other way. And that in itself could be a very tricky sign for stock market...

Consider this - it wasn't so long ago when WSJ reported that

"By the end of June, a model portfolio of momentum stocks had returned 71.3% year-over-year, while a model portfolio of value stocks with high book-value-to-price ratios was down 54.8%, according to Joseph Mezrich, head of quantitative research at Nomura Securities"

Looking at the chart provided with this article, leads to an interesting observation -the last two times when "momentum" strategy has outperformed "value" by such a drastic margin was: right at the peak of Tech Bubble and then second time right before the markets started the 2003 "Bull" Market.

Obviously, the outcomes of these two events were drastically different, and thus correctly predicting which way markets are going to swing this time, is exactly what one needs to do to stay ahead of the market during the next few year. But that won't be easy- economic data has been very inconclusive so far.

The only way I could describe the current state of the US Economy and stock prices is that, surprisingly enough, it's one of the rare situations where both bulls and bears could make an a sound and believable argument to support their case. US corporate profits have held up better than many feared and commodity prices have suffered a hefty double digit declines during the last several weeks.

On the other hand, economic fortunes of other key developed countries in Europe and Asia are deteriorating much faster than anyone could have expected and strength of the US dollar is now threatening the shut off the "real" engine of growth in US corporate earnings during the last several quarters- currency translation gains... So let's call it a draw for now and assume that bulls and bears will keep fighting it over for a while, before one side finally wins.

I have not yet made my own judgment call and probably won't really be able to do that until the TA driven rebound runs its course. S&P Index does seem likely to at least test the 1325-50 level, so I am just riding along for now...

But on the other hand, another trend is becoming more or less clear every day- during the next stock market round, whichever way it finally goes, "value" strategies are likely going to outperform the "momentum" ones and thus investors should carefully review their portfolios to make sure they are positioned accordingly.

Stay safe out there, skepticalcapitalist@gmail.com