NEW YORK ( Real Money) -- Is there suddenly too much of everything? Or has there been too much for everything for a long time and we just didn't know it? Was there too much of gold before its collapse? Are we now discovering that there was way too much copper all along? Did we always have too much oil and we didn't know it?
I think everyone has to be thinking along these lines right now because of the sudden declines in so many commodities that seem to all have gone from some tightness to equilibrium to glut in a blink of an eye.
Let me offer you my theory.
In the last two decades we have seen an unprecedented financialization, if you will, of all commodities. Pretty much everything is traded either through glibly created ETFs or through futures backed up by warehouses somewhere or through physical hoarding via tanker ships. The pools of money that have chosen to make commodities as an asset class is much larger than we can ever know because those funds aren't registered anywhere and pretty much report to no one.I am sure at one time, before the ETFs and the large pools of capital, you might have traded these commodities on actual supply and demand. But if you look at the excellent work that Alcoa (AA) done on commodities you would know that supply and demand have had little to do with any of the prices of metals in the last few years. What mattered was the financial buyer not the natural buyer. Right now, for example, when Alcoa looks at all the smelting facilities that are open, when it looks at how much aluminum is available vs. pretty constant needs -- as opposed even to the accelerating ones we are seeing -- supply, after overwhelming demand, is finally getting tight. But it has done nothing at all to the price of aluminum, which is very weak. Editor's Note: This article was originally published on Real Money on April 18. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money. That shouldn't be. But it is. Trying to understand how it can be requires you to think like a hedge fund manager, not an aluminum merchant. And here's how you think: China's going to reaccelerate growth so I will take down a lot of aluminum and when China does reaccelerate I will make a killing. In the meantime, interest rates are so low I can afford to warehouse the stuff.