THE FEW REMAINING PEAKS ARE CONFIRMING THE MAJOR REVERSAL IN COMMODITIES (April 27, 2008): Most investors have been highly skeptical of claims by myself and a few other analysts that the U.S. dollar bottomed on March 16, 2008 and began a powerful one-year rally. The media hype about a falling greenback has been so pervasive that dissenting voices have been almost completely suppressed until very recently.

However, in addition to making a bullish pattern of progressively higher lows over the past several weeks, gold mining funds and indices including GDX and HUI have recently touched four-month lows. Lower prices for gold producers are a reliable confirmation of a U.S. dollar rally. Prices for nearly all commodities have joined in the downtrend, with gold, silver, platinum, palladium, cocoa, wheat, corn, and soybeans among the vast majority of commodities that have been in multi-week downtrends after having rallied to multi-decade peaks in February and March.

I know you're thinking, wait just one minute--the media keeps saying that commodities are still going higher. What about crude oil and rice? This raises a critical point--the very few commodities which are still touching new multi-decade highs have gotten so much media attention that they have completely crowded out the true story, which is that more than 80% of all commodities have been moving substantially lower over the past several weeks.

The much-hyped minority of divergences, in other words, are distracting the average investor from the majority which constitute the main trend. This kind of behavior is quite common in the financial markets. By January 1973, for example, thousands of U.S. equities were already in major downtrends, but a tiny group of several dozen stocks, known popularly as the "Nifty Fifty", continued to set new highs amidst much media fanfare. These stocks, which supposedly "couldn't go down", thereafter plunged far more than the overall market.

The same is about to happen now with crude oil and related energy commodities. The current fantasy about how crude oil prices "can't meaningfully decline" or "can only experience temporary brief pullbacks" is identical to the nonsense about the Nifty Fifty 35 years ago, or real estate two years ago. If something is fundamentally overvalued, overbought, overhyped, and overloved, then it will surely plummet in price. The total decline for crude oil is likely to be about 50% over the next half year or so, which will make it one of the worst-performing global asset classes over that period of time.

The same will be true with rice. Just as wheat and soybeans and corn have initiated important downtrends, rice will not be a magical exception to the rule. There has been a lot of media foolishness about supply shortages, whereas actually there is more supply and less demand than there was a year ago.

The reason that we have had these divergences is that there is a lot of money worldwide which is currently invested in commodity funds. The fund managers see that gold, silver, cocoa, and wheat are falling in price, so they shift into the few commodities which are still rising, such as crude oil and rice. This has nothing to do with fundamentals and everything to do with fund managers trying to outperform each other to grab investors' money.

Remember that just six weeks ago, data showed that Indian gold demand had plunged by more than 80%. Many analysts insisted that "it doesn't matter--fund demand for gold will make up the difference". Now gold mining shares are at four-month lows. Physical demand for commodities always matters; artificial demand by fund managers can only create a temporary move higher.

Agricultural commodity funds were not actually consuming wheat or soybeans, so their prices eventually were forced to start declining--and have been doing so for two months. Oil hedge-fund managers are not consuming oil; they are just artificially pushing up its futures prices. Once they start selling, the truth of the situation will become clear and prices will rapidly plummet.

HOW DID THE PRICE OF CRUDE OIL GET SO HIGH IN THE FIRST PLACE? (April 27, 2008): The following is an explanation in a nutshell. In the middle of July 2007, the broad U.S. equity market began a multi-month downtrend. One month later, money which had previously gone into the stock market began to progressively move into commodities. As equities accelerated their downtrend around the world later in the year and in early 2008, commodities enjoyed a massive fund transfer. Many amateur investors bought commodity funds for the first time in their lives. By the middle of March 2008, as global stock markets had plummeted, many commodities enjoyed multi-decade peaks.

The U.S. dollar index bottomed on March 16, 2008. As it subsequently began to recover, one commodity after the other began a downtrend--gold, silver, corn, and so on. Some commodities such as wheat and soybeans had already peaked in February. Since crude oil was still rising in price, commodity fund managers and hedge-fund managers began to sell most commodities to buy those few which were still rising in price--especially crude oil.

In other words, it has nothing to do with logic--it's just that crude oil was in the right place at the right time. Falling stock markets around the world stimulated a massive investor shift into commodities, while the subsequent commodity collapse induced massive commodity fund buying of the few remaining commodities which were still rising in price.

Now, crude oil and rice will soon catch up to equities and other commodities by staging a dramatic collapse. That's how the financial markets have always behaved--and how they will always behave.