Has The Commodities-As-Inflation-Hedge Play Run It's Course?

Mark Dow thinks so (h/t Ritholtz):

Many may have forgotten by now that the first massive wave in commodities was in 2007-2008, back before we knew what QE was. The story then was China and the Emerging Markets were rapidly plugging into the grid, set to consume our finite reserves with their vertiginous growth trajectories.

Subsequent boomlets in commodity prices, the ones that came post-crisis, were linked mainly to monetary stimuli and the flight into hard assets.

Together, this imprinting led us to reach for emerging markets and commodities any time we had a risk-on phase. In this last phase people have again reached for commodities and emerging markets to express their bullishness, but I’m suggesting this time they are setting themselves up for disappointment.

The first reason is that the emerging markets have downshifted their rate of growth. Some even have their own processes of credit digestion to contend with. Moreover, before the downshift we feared EM could grow to the sky, leaving many of us guessing at how intense the competition for scarce resources would become. We now have a better handle on “how high is high”.

Second, we have been coming around to a better understanding of monetary policy. We now increasingly get that the effects of monetary policy will be largely psychological and transitory until the deleveraging process approaches completion. At least, I hope we do. Otherwise, the fall in commodity prices will be deeper and the pain trade will last longer.

The main problem right now is that the folks with all the money are the ones who don't need it.  They've been driving the commodities investment wave.  If they find out it's a fool's game and pile back out, things may get really ugly.  As the commodity prices have increased, the real demand for commodities has diminished.  If speculators are the main buyers, then something bad is going to happen.  If we get a record, or even an average crop this year, things could get really ugly.