Mocha Express
Commentaries
Thought provoking commentary on
Business, Technology, Organizations, and Organizational Dynamics
to clarify my thinking and engage in intelligent conversation.
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2.8 Excessive Greed Comes Before The Fall or
Commodity Index Funds Sow Seeds Of A Big Bust ...just like Sub-Prime

April 19, 2008

The Oregonian story, today,
Growing too fast for own good?
contained a very illuminating comment on why the commodity prices have skyrocketed:

Richard Brock, Milwaukee-based commodities analyst, said index funds are "literally running the market" with billions of dollars in play. "It's absolutely obscene," he said.

Index fund managers see free-market economics at play.

Daniel Raab, managing director for AIG Financial Products Corp., said funds' share of the market has been near 25 percent since early 2006. Funds' investments rose to $55 billion in early April from $23 billion in the same month two years ago, due to a mix of new money and gains on funds invested. Meanwhile, total futures and options markets for major commodities such as corn, wheat and soybeans grew from about $85 billion to $222 billion.

"Ultimately, if these aren't fair prices supported by the fundamentals, then the prices won't stay at these levels," Raab said.

What this says is that the non-productive, index investment funds have cornered the market on corn, wheat, soybeans, etc, and are gouging consumers. 25% is a HUGE fraction of US food reserves and these guys, who will never, ever take delivery or actually do anything, other than churn the market, have enough money to tie up 25%.

Their rational, effective markets, only works if there aren't any players who can have a "controlling" interest. Unfortunately, just like in the sub-prime mess, the index funds, are big enough "fish" in a modest sized pond to cause major price dislocation.

So, I think we are in the middle of a "big mess" as the greed of the index funds causes major price increases (and starvation) in the world.

For those who don't want to repeat history, this looks a big like the late 1920's.
=> and what do the current crop of presidential candidates know about the Great Depression?


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in Elucidate Book

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Elucidate
       Chapters

1   Clever, but not very Smart
  January 01, 1997
1.1   Mayberry Rules
    February 20, 2012
2   Random Elucidatons
  January 01, 1997
2.1   Stifle Free Speech
    November 16, 2012
2.2   Rewarding Accomplishing Goals
    February 17, 2013
2.3   Banana Slugs: The Law of Unintended Consequences: Protect and Lose
    August 02, 2009
2.4   Computer ate my Sbx Reward
    February 03, 2013
2.5   The End Of Innovation or How To Lie With Statistics?
    July 02, 2005
2.6   Lying With Statistics: CNN Article that Organic Food is Not "more nutritious'
    August 22, 2008
2.7   Everything Old is New Again
    June 28, 2011
2.8   Topical: just like Sub-Prime => Commodity Greed
    April 19, 2008
2.9   Tools: Spreading Knowledge That Can Hurt:
    April 14, 2008
2.10   Tools: Trying to Help While Still Selling Corn
    February 27, 2008
2.11   The Game is Rigged: Attacking with Speculative Analysis
    January 06, 2008
2.12   Getting your "Eyes On" to see ATV Damage
    November 26, 2007
2.13   US Forest Service - "Leave No Trace... or you will do Trail Maintenance with a Trowel!"
    October 13, 2007
2.14   Act Locally, Destroy Globally: Cultivate Disease Resistance
    March 04, 2007
2.15   Joisting with Self-Glorifying Windmills
    March 03, 2007
3   Analysis
  January 01, 1997
3.1   Analysis of Medical Insurance Discussion
    April 06, 2013
3.2   Degrees of Risk
    April 24, 2013
3.3   Qualifying Experts
    January 25, 2014
4   Finches: Urban Ones Smart??
  March 23, 2016
5   BBC - Propaganda
  June 10, 2016
6   BBC Propaganda, again
  June 15, 2016
7    Why did Agriculture Start 13,000 years ago
  June 23, 2016
8   Ice Core TimeLine Munge
  September 22, 2016
9   Ice Age Survival
  December 29, 2016
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