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Commodity boom looks like rerun of TMT, says fund star

PSigma income fund manager Bill Mott says the market bias towards commodities and natural resources draws similarities to the TMT bubble of the late 1990s.

Mott says that technology, media and telecom stocks were regarded as the future of the economy, with old world stocks seen as “boring in the extreme”.

He considers that the same psychology is prevailing with commodities and natural resources, with the bulls arguing that long-term demand for natural resources from emerging markets will continue to drive up the price of commodities.

But Mott warns that inflationary pressure from big price increases in commodities could push Western economies into recession and stagflation.

He also believes that the British economy is showing similar traits to the period before the UK left the exchange rate mechanism in the early 1990s.

Mott says: “The domestic cyclical and financial areas of the market are priced for armageddon, current economic policy is unsustainable and eventually interest rates will fall and economic recovery will occur.

“The prices of many stocks in these areas of the market are trading at lower valuation levels than before the ERM exit or the peak of the TMT boom.

“We believe that such stocks are offering a once-in-a-decade opportunity to buy at yields which in many cases are higher than the returns available on cash or Government bonds.”

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