Merrill Lynch: Commodities May Have Peaked (MER)

If you have been worried about inflation and the price of things such as metals, energy, food, and more, Merrill Lynch (NYSE: MER) may have some hopes for you.  In fact, if you have been watching the oil ticker today you would certainly have noticed that oil’s drop was at one point $9.00.

Merrill Lynch has said that the commodities cycle may have peaked in the first half of this year.  It noted that the S&P/GSCI commodity index was up roughly 41% during the first half of 2008, which is the largest gain since the index inception.

It isn’t just about performance though.  Merrill Lynch noted the slowdown in global growth, weakening fundamentals, and challenging macroeconomic issues that should continue all being added weight to the sector.  Another issue would likely be some added slowing in emerging market growth in the coming years.
The firm has reiterated its "underweight" stance and said it would urge investors to reduce portfolio exposure to commodities.  We contacted Merrill Lynch for more details than we were able to get from clients but the firm doesn’t want to release that full report to the public yet.

Here are some other supporting data from recent days, some of which is actually refuting but that is what makes a ball game:

• A gold company buys an oil company to hedge energy costs
• Oil prices may lead to recession
• Ken Heebner sticks with Petrobras.
• T. Boone Pickens takes his energy plan on the road
• Refiners can’t pass on enough costs

Jon C. Ogg
July 15, 2008