My previous article listed the most actively traded commodity ETFs, sub-categorized by broad commodity, agriculture, energy and metals along with the Malthusian view, that “The power of population is so superior to the power of the Earth to produce subsistence for man that premature death must in some shape or other visit the human race". Thomas Malthus, 1798

Regardless of demand, commodities started falling in mid-March and continue down into April. Agriculture and other commodity sectors took a hit, and exchange traded funds fell along with them.

The sell off was led by oil. In the first day of the pullback three major oil ETFs fell:  

Metals and many agricultural ETFs followed. An upward bounce gave commodity investors a little hope as the financial sector gained strength and the dollar showed signs of life. The volatility is high from day to day, but the downdraft is clear.

March performances ended poorly. Gold (ETF: Ticker: GLD) ended at $921. Oil stepped back to $101.61 a barrel, Silver (ETF: Ticker: SLV) ended down 13.1%. And Agriculture slipped by 12.7%.  The April 1 (April Fools Day) figures are equally unimpressive, with Oil down 0.78%, Gold down 3.66%, and Natural Gas (ETF: Ticker: UNG) falling 4.76%.

Of course, any significant move by the market is generalized across the spectrum of ETFs and is seen as a harbinger of future evils.

Barron’s cover story of March 31, 2008, cooked up grave warnings for the future.

“More than half of all bullish bets on commodities have been made by speculators, both big and small. When these markets fall, they’ll fall hard, perhaps by 30%.”

Barron’s pronouncement of the bursting bubble activated all bearish sentiments. One, posted by Eli Hoffmann screamed “Get Out of Commodities – Barron’s.” That article title re-appeared in at least ten different places on the Internet and no doubt helped create a gloomy reality out of an overdue correction.

Not all analysts are stampeded by the “Bear” facts of market fluctuations. Sally Limantour writing for Taipan publishing group has it right:

“The big picture has not changed... demand issues are pressing and widespread... In the macro picture, we still have the incredible growth stories of China, India, Brazil and Russia.

.

She might have included Europe, Africa, the United States, and South America.

Sean Brodrick of Money & Markets concludes: ”So while this bull market will end someday, I think it has a long way to go. Historically, bull markets in commodities last an average of 15 years.”

The galloping demand for goods follows population growth and economic development. Murray Coleman remarks: “It’s inevitable that water and clean energy is going to face rising demand going forward.”

Finally, Simon Maierhofer of ETFguide concludes: “Regardless of how you calculate, the U.S. equity market is still a nervous wreck. Further declines in equities will make commodities more attractive yet again.”

WHAT TO DO IN TIMES OF UNCERTAINTY

Investors may be shaken by recent pullbacks in the commodity market, and ETF downturns, in particular, but the long-term trends are unmistakable and should be the guiding indicators. The message for meeting the challenges of the inevitable megatrend is “Go long”!

Commodities will probably correct more as the global economy cools; it would not be surprising if the downturn is 20% or more before a consolidation occurs. Once a bottom is established it is extremely likely that the Malthusian draft will carry the high quality ETFs upward to impressive altitudes.

One might want to resist immediate action during this market turmoil, but investors need to be ready to participate in the greatest super-commodity cycle of all times.

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