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On the last episode of The Trading Desk we talked a bit about fear and greed. Today’s commodities markets are a great example of the kind of greed that marks a market top.

From the LA Times:

Retail gasoline prices surged to new highs in California and nationally over the last week, the Energy Department said Monday.

Investors seeking a hedge against the weak U.S. dollar and the poor performance of stocks were driving oil and gasoline prices, experts said. Supply and demand, they said, had nothing to do with it.

“Commodities like oil are the only game in town,” said Fadel Gheit, an analyst for Oppenheimer & Co. Said Tom Kloza, chief oil analyst for the Oil Price Information Service: “T.S. Eliot talked about April being the cruelest month. I’m beginning to think he was talking about gasoline.”

Supply and demand don’t matter? Doesn’t sound like reason is ruling the oil and gas markets right now.

Here’s another point: every recession over the past 25 years has started with rising gas prices and ended with falling prices. The NY Times ran this graphic last summer:

Now that it’s fairly obvious we’re in recession, we should expect falling gas prices. The dollar signs in speculators eyes, however, are preventing them from seeing the writing on the wall.

Bottom Line: This is how tops are made.

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Ronald D. White
The Los Angeles Times

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Barry Ritholz
The Big Picture