Goldman’s Flip-Flop Is Hardly Shocking

05/09/2011 5:09 pm EST


Jim Jubak

Founder and Editor,

I think you’re entitled to feel a little cynical today. And you quite probably feel some anger too if you sold some commodity-stock positions last week.

Goldman Sachs (GS), the Wall Street giant that predicted a sell-off in commodities—a call that undoubtedly contributed to creating that exact sell-off last week—is now predicting a recovery.

Last week’s rout drove the Standard & Poor’s GSCI Index of 24 commodities down 11% in five days.

Today, the index was up 3.5% as of 3:05 New York time.

In a May 6 interview with Bloomberg, Jeffrey Currie, Goldman’s head of commodity research, said, “Given the magnitude of the pullback, it does create an opportunity for more upside potential, particularly in the second half of this year, when fundamentals are expected to tighten.”

A month ago, Currie advised investors (and I use the term very loosely here) to go underweight commodities.

The last time the S&P GSCI fell this much, it rebounded 12% in the following week.

Last week, all anyone on Wall Street could say was, “Global demand is falling. Look at slowing growth in China, India, and Brazil.” This week the mantra is, at least so far (it is only Monday), “Global demand is rising and producers can’t keep up. Look at the growth in China, India, and Brazil.”

Next time you hear a call, bullish or bearish, from one of the big Wall Street trading companies, remember that they make their money on volatility. Up, down, up, down—and then count the trading commissions.

(And the trading profits too, if a trader or two at your company bet the company’s own money on the call the company was about to make. Not that any Wall Street investment house would ever put its own trading profits ahead of the interests of its clients. I’d never suggest that.)

My advice remains the same: If you want to know where commodities (and commodity stocks) are going in the short term, watch the US dollar and the euro. Troubles in the euro (like today’s downgrade of Greece from Standard & Poor’s) lead the dollar to rally, and that’s bad for commodities.

In the long run, of course, I still think you’re safe betting on a falling dollar (and rising commodity prices).

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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