New Bull Market in Commodities?

from iStockAnalyst:
Reuters is quoting Abby Joseph Cohen, chairwoman of the investment policy committee at Goldman Sachs as saying the new bull market has begun.

At the same time, FT Alphaville pointed out that Goldman Sach's commodity research team sees a commodity supply shortage developing in 2010 that could become so bad that governments end up having to conduct coordinated policy responses. As the following graph by FT Alphaville shows, Goldman has been spot on about movements in WTI crude oil prices.


This implies new historical highs in crude oil, copper and agricultural commodities--think $147/bbl oil and what that would do to global demand.


The bull market call says we should load up on stocks, while the commodity call is more omnimous. Yes, if the commodity call is correct, investors stand to make big returns on commodities like crude and copper, but a "severe" supply shortage means prices will begin choking off demand, i.e., harming economic growth and stock prices in the process, as well as fostering ballooning inflation that central banks ostensibly would have to respond to.

The question is, at what point does the portended surge in commodity prices kill instead of cheer stock prices? Ostensibly, when there is evidence that soaring commodity prices are feeding into accelerating inflation and severely hampering consumption. That's not likely to happen until crude oil for example exceeds previous highs (over $147/bbl).

My thoughts:
The only part of this that I disagree with, and this is minor, is the price level at which commodity prices would stifle economic growth. Since the economy is so weak, I suspect that level would come at a much lower price than before. The break in commodity prices occurred around the 4th of July in 2008, months before the economic crisis fully hit with all the bailouts and TARP. This was also long before the vast majority of job losses.