The price of oil has risen 729.58% from its low on November 19th, 2001 to its closing high of $138.54 on June 6th. When compared to the tech bubble of the '90s and the real estate bubble earlier this decade, oil's rally is just about in between the two. As shown below, from the Nasdaq's significant bottom on June 24th, 1994 to its peak on March 10th, 2000, the index rallied 639% over 2,086 calendar days. From its bottom on March 14th, 2000 to its peak on July 20th, 2005, the S&P 1500 Homebuilder index rallied 839% over 1,954 calendar days. Surprisingly, oil's rally is now longer in duration than both the tech and real estate bubbles at 2,391 calendar days. As we all know, the tech and real estate bubbles eventually burst and fell by as much as they rose. Their declines were very similar in both duration and size as well. While significant gains in any asset class carry their own set of circumstances and positive arguments, it's hard to look at this chart and not expect to see oil's red line come down significantly at some point. The demand argument for oil might be strong, but there were no shortage of "demand" arguments during prior bubbles either.
Note: we always maintain a certain allocation to commodities in our all-ETF portfolios, with regular rebalancing to keep the allocation inline.
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