When things began to get a little out of hand in some markets a few months ago, it seemed difficult to get into sync with what was occurring. Well, we may not be any more in sync than we were before but, for better or worse, we’re back. The ongoing rise in crude oil and energy prices still doesn’t make a lot of sense, and until the declines of the last few days, U.S. stock indexes seem to be hanging higher than they deserve. Here are just a few observations from the last few months:
— The mystery market to the Mystery Trader is corn. Wheat futures seem to be responding “normally” to supply/demand, and even higher soybean prices are understandable. But what is holding corn prices up? Are 2008 production prospects that bad?
— The “big speculators” (hedge funds and other money managers) have gotten a lot of the blame for running up prices for many markets as they looked for places to invest, and their one-way investing (buying) in futures probably did cause a disconnect with real-world cash prices and made hedging and marketing a real venture for producers. Now the johnny-come-lately CFTC, pressured by Congress, wants to put the clamps on big speculators. When prices are high, consumers blame speculators; when prices are low, farmers blame speculators. Whatever your opinion on this issue, getting Congress and government involved in the middle is a big mistake. Just look at how they’ve botched the farm bill!!! Get rid of the manipulation and fraud but just let the market work it out.
— How can the U.S. dollar avoid going any lower? Yes, I know, most people think it will sink, and contrary opinion is usuallly the best approach. But with the paper and credit being thrown at the market, can higher inflation and a lower dollar be far away? It looks to me like the only way out.
— The New York Stock Exchange and London Stock Exchange are losing market share to upstart exchanges and losing money. Could that phenomenon extend to futures exchanges, reducing the one central marketplace concept that has dominated futures markets for years? Several threats have already emerged. With more exchanges and fewer big speculators (see above), the markets could start to look a little different in the coming years.