Cattle Today

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CATTLE TODAY

COMMODITY INSIGHT

by: Jerry Welch

There is an old saying that if your neighbor is out of work that is a recession, but if you are out of work that is a depression. The current housing crisis reminded me of that old saw for two reasons. One, if you are secure with your home and not struggling to make payments and have no intention of moving, then there is no housing crisis. If, on the other hand, you are trying to buy a home, refinance a home or trying to sell a home with mortgage rates now at a 10 month high, then there is indeed a housing crisis. The other reason I thought of that old adage was the sensational

headlines the mainstream media is giving to the current sell off with the US stock markets and the reasons they offer for the so called, "meltdown." Here are just a few of the headlines I am referring to; "Is an Economic Katrina About to Overtake the Financial Markets?"; "US Stocks Tumble for Third Week on Lending Crisis"; "Dow: Another Devastating Decline."; Markets Fall as Lender Woes Keep Mounting." The headlines did not catch my attention as much as the reasons given for the sell off with equities. From MSNBC in a headline; " Hedge funds could be behind late stock swings" the article states, "If you're baffled by Wall Street's performance this past week, consider the increasing influence of hedge funds have in manipulating the market." The article claims the hedge funds should not only be blamed for the weakness and they are manipulating the markets as well. The same article goes on to say, "Hedge fund managers have been making bets on how far down or up the market will move in a given day by making sophisticated "short" and "call" investments. This is how hedge funds and the big proprietary trading desks on Wall Street make their money. For the individual investors, they are completely out of the loop and along for the ride." Two paragraphs tucked neatly in the middle of the article stated, "this catalyst for this new breed of volatility has been the markets increasing anxiety amid a continuum of dour headlines about faltering subprime debt and the erosion of leveraged buyouts. But this makes for an almost perfect trading enviornment for hedge fund managers who thrive on volatility..hedge funds and mutual funds also rely on electronic trading systems that automatically execute trades based algorithms..." There you have it. The hedge funds live for volatility and their activity is based on mathematical formulas and chart patterns. Those in agriculture are well aware of hedge funds, index funds or commodity funds. For years, agricultural producers and traders have been cussing and discussing the funds because of the influence they have on the price discovery process. Now that the stock market is coming unglued, the media is crying foul. And that reminds me of another old saw that goes" it all depends on whose ox is being gored." Let there be an understanding here. The funds, regardless of name are here to stay because they are out to make money. The funds are, simply put, hot money chasing hot markets. The media can blame the current weakness in stocks on the funds but they are not being totally honest when the leave out the obvious; had it not been for the hedge funds, US stocks would not have rallied as high as they did. The same can be said about the US ag markets. It is easy to cuss the funds when corn prices as an example, endured a record sell off more than $1 a bushel in 12 consecutive lower closes from mid June to early July. But had it not been for huge fund buying a month earlier that sent prices 85 cents a bushel higher, corn prices would not have been lofty enough to allow the market to fall $1 a bushel. I am always amazed at how high and low the funds, hedge or otherwise can push values in face of fundamentals such as supply and demand. Over the short run, the funds have the power to push prices far above or below true economic value at any time. That I known is a fact. Another fact of which I am certain is this; fund activity is the reason markets peak or bottom more than any factor. The funds are the ones that put in place, market tops and bottoms, peaks and valleys. Agricultural producers have come to accept fund activity in the marketplace as part of the new world order. The mainstream media and those that invest only in the stock market need to accept that fact as well. It is all well and good to discuss fund activity but a waste of time to cuss it. It is part of the new world order for all markets. Get used to it.

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