Bernie, The Commodity Dragon Slayer.

As most of you know, commodities went through an overdue correction last week. This shouldn’t have been a big deal.

Here’s the problem. As a result of that correction, some folks are making assumptions that don’t make sense. In fact, some of these assumptions are downright dangerous.

For example, the media and others are giving Federal Reserve Chairman Bernanke credit for “putting an end to commodity inflation” with his brilliant strategies. On March 21st, Bloomberg stated that “the biggest commodity collapse in at least five decades may signal Federal reserve Chairman Ben Bernanke has revived confidence in financial firms.” ..That's a whole load of crap ! This is faulty thinking. To imagine that Bernanke deserves credit as "commodity dragon slayer", even as he lowers interest rates and continues to stoke inflation, is mind-boggling.

So what exactly caused the vicious sell-off in commodities? When all was said and done, by last Thursday’s close, gold had its biggest weekly loss since August 1990. Oil had plunged almost $10 over three days. The corn market was off by 9%.

There were a number of things that contributed to the sell-off. First, the commodity markets had gotten ahead of themselves, and were in a classic “overbought” situation. Second, derivative trading losses and shrinking credit lines forced hedge funds to liquidate their winning trades -- many of those trades in commodities -- in order to free up capital. There was also fear the Commodity Futures Trading Commission, or CFTC, was on the verge of raising margin requirements for commodity positions. This happened at the end of the last big commodity bull market, when the Hunt brothers were forced to liquidate their silver positions -it wasn’t pretty sight. Furthermore, the dollar was oversold and ready for "a bounce". All these factors combined to create a swift break, which has now taken many commodities back to more attractive buying levels.

To say the commodity bull market is over is just, well, a bunch of bull. Let’s take a look at the facts. Well, the big picture has not changed. We still have central banks pumping money like mad into the global financial system. This is long-term inflationary. Bazoooka Ben is not going away. Nor is his one-trick strategy to save the world - running a printing press. This is long-term bullish for gold and silver.

When discussing the general supply-demand imbalance for commodities, I am referring to a very, very big trend. In fact, we now have two “megatrends” colliding. Thirty years of restrained and neglected natural resource supply are coming face-to-face with three billion people intent on discovering capitalism. Irresistible force meets immovable object? We haven’t seen anything yet!

The commodity bull market is alive and well. Last week’s correction let some much needed air out of the balloon, that’s all. It would be healthy at this point to see some consolidation, but we might not get it. Already it looks like commodities could be off to the races once again.