A commodities bubble is brewing

All the anecdotal evidence points to one thing; the commodities boom is starting to look like a bubble, says Gaurav Sodhi.

I called it last week with Glencore's partial IPO, and I'm calling it again now: the commodity boom looks dangerously bubbly.

Americans now say China's economy is more powerful than theirs despite China having a tenth of the per capita income. The Treasurer, the RBA, the press and the common man all agree that the Chinese boom will lift Australia and are changing their behaviour as a result. When there is unanimity on any issue, contrarians and value hounds should take note. Crowds are rarely right.

Wages and salaries are exploding in the resources sector. Property prices in middle-of-nowhere mining locales are soaring and speculation in commodities is rife. New luxury high rise apartments in the Pilbara are being built while flights and accommodation in previously sleepy towns is filled with miners and bankers. Even within a paradigm shift, there is room for overshooting.

If you need any more proof; Saudi Arabia, flush with oil money, now plans to build the world's largest building, which will tower above the current champion in Dubai. Don't be surprised if there's an oil price crash to top off the inevitable correction.

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