Zurich, Switzerland

Commodities are entering the gates of a “bubble.” But that doesn’t mean you still can’t make money before the curtains come falling down sometime over the next few years. A protracted period of easy U.S. and European monetary policy combined with weak currencies in the United States and the eurozone probably assure further gains for raw materials.

Zurich, Switzerland

I’m pretty confident that commodities are now entering the gates of “bubble” territory.

I’ve edited a commodity service since 2003 and it might be in my best interest to suggest otherwise; but I won’t.

Most commodities have now entered what I would coin “the stupid phase” of the cycle. That’s when everyone is bullish, money is pouring in like mad, the China factor justifies every price spurt and ETFs are popping-up like new Facebook subscribers.

Zurich, Switzerland

“It is preposterous to claim the whole crisis is caused by irrational markets. Debt levels are off the charts.” – Kenneth Rogoff, Harvard University

The above quote was pulled from the Weekend Edition of The Financial Times, which I read while flying to Zurich on Sunday night. And it’s dead-right. The Europeans got here because they spent money like crazy. Now the Piper’s calling.

Montreal, Canada

The next super phase of the gold mining bull market is already underway since last spring. For the first time since 2007, junior mining stocks are racing ahead of the pack this year. The only sectors even coming close are junior and mid-sized base metal mining stocks.

Two primary gold exchange-traded-funds now show a clear divergence as performance favors the juniors and mid-cap exploration companies.

Montreal, Canada

Iron ore prices – subject to intense price negotiations this year – are set to rise by 9% in January as tight supplies push steel prices higher.

Iron ore, used to make steel and ranked as the single biggest industry within the raw materials complex, sets the stage for price hikes next year and will likely force the Chinese to pay up for fresh supplies. China is the world’s largest importer of steel.

“Italy’s public finances are sound; we are not among the countries at risk.”

Luigi Casero, Italian Treasury Undersecretary

The above quote was taken yesterday in Rome and was meant to deflect speculators from attacking Italian government bond markets. Unfortunately for Italy, a similar pronouncement was made in 1992 just ahead of that country’s humiliating devaluation and exit from the European Exchange Rate Mechanism (ERM), the euro’s predecessor. Just days later, the Italians devalued the lira by 17% and left the ERM grid.

Montreal, Canada

The Fed’s second quantitative easing program, QE II, might have ignited a fire under commodities prices recently, but not everything is heading higher. Two of the worst performers in the commodities space lately are milk and cheese. Milk prices have been especially weak.

Butter, however, is the best-performing soft commodity in the dairy sector, up more than 100% over the last 12 months. Yet milk and cheese are sputtering. Since October 2009, milk and skim milk prices are almost unchanged while cheese prices have gained more than 15%.

The ongoing bull market in raw materials continues to drain the total returns generated by some ETFs, or exchange-traded-funds, tied to the complex.

Increasingly, the most cost-efficient way to participate in commodities is to buy and hold natural resource equities, not the underlying commodity future; though commodity futures provide a higher degree of correlation to the secular trend underway since 2002, contango is causing all sorts of price distortions and diluting the returns of some products.

Montreal, Canada

The province of Saskatchewan has emerged as Canada’s leader in fiscal responsibility. That comes as a surprise to many investors because for years Alberta carried the torch on the heels of a secular energy boom. But Alberta’s fiscal discipline went out the door last year after years of recording surpluses.

Saskatchewan reported a higher than expected budget surplus yesterday, mainly on the heels of strong potash fertilizer and oil prices. Saskatchewan has also emerged as a tar sands player, rivaling Alberta.

Montreal, Canada

Increasingly, government bonds that were once perceived as super-safe investments are turning out to be risky securities. Sovereign debt markets in Ireland, Greece, Portugal and Spain are hemorrhaging again this month with Ireland the latest casualty.

The Irish economy is basically bust. Portugal isn’t far behind. And Spain, which should escape a debt restructuring and ranked as Europe’s fourth largest economy, is now coming undone as credit spreads blow wide open.