Over the last few years, the commodities markets have been on a tear. The value of food, metals and oil products have been going up dramatically, leading to increases in food and energy costs everywhere, not just in the US. Inflation has been running rampant. Today, the bubble burst.
There was a huge drop in the commodities markets, especially in agricultural products. Inquisitive types, not understanding the reason for such a sudden shift in the markets, will go off in search of an explanation. It didn't take more than 2 minutes. Hedge funds. Driving up the cost of food, fuel and natural resources.
Huh? I thought the commodities markets operated on supply and demand? Apparently, yes and no. Small price pressures can become much bigger price pressures when the hedge funds come to play. So what happened Monday? .
Some investors are selling commodities to raise cash to cover losses in equities, Flerlage said.
``A lot of hedge funds have been up to their eyes in commodities this year,'' he said. ``It's been a very speculative play and so now they're getting out of it to cover margin calls and losses.''
That was just a few lines in Bloomberg News mixed in with paragraphs of discussion about concerns of commodities traders about the reduction in consumption of commodities during a recession. Right. In agricultural commodities markets values of many goods plunged the maximum allowable amount on the Chicago exchange. Soybeans and palm oil have already collapsed in early trading this morning on the Asian exchanges. That's not a little bit of concern about reduction in demand for commodities. That's damn near a panic. A recession has a huge impact on the consumption of (and demand for) wheat, corn and soybeans? I just love the way the business media can spin. It's downright Republican. Keep moving. Nothing to see here.
And what "investors" would be covering losses in other markets? It was a bunch of very "sophisticated" investors who are experiencing margin calls after the collapse of Bear Stearns and the pending collapse of other major players in the derviatives markets. It sure wasn't your average small investor desperately trying to preserve financial resources in their rapidly sinking retirement account.
What's particularly galling about all of this is to consider the social impact of this trading. These folks have driven up the cost of food and fuel as part of their unregulated manipulation of the financial markets in general and commodities values in particular to make money for their rich clients. Sure, supply and demand are clearly factors in commodities trading. But amplifying those natural swings in commodities cost is criminal. The cost of food and fuel means nothing to the rich, but to the poor, it's everything. There is no place in hell hot enough for these folks, but shipping them to Baghdad in July to help patrol the neighborhoods with a BB gun sounds like a good idea.