In the 1960s and 1970s, the price of stocks were determined by the percieved long term value of the company. Many working folk invested in companies like Ford, GM and General Mills and never gave their investments another thought.. and in general, they were profitable. In the commodities markets, the price of commodities was determined by the push and shove between farmers trying to sell their grains at the best price and companies like General Mills trying to get it at the lowest price. In short, these were the days when markets were used as vehicles to fairly determine the value of companies and commodities.
In the early 2000's, I traded commodities.. grains primarily, some currencies.. and generally not very well as I'm not very good at the mathematics part of trading, known as "tecnhicals". These math programs, developed by the likes of William Gann and others.. the most famous of which is the Fibonacci system.. have been honed to perfection by mathemeticians into computer programs known in the trade as algorithms, or simply "algo's". These sophisticated programs put the firms that use them.. combined with the amount of money these firms have to manipulate markets.. in firm command of trading stocks, currencies and bonds. Smaller investors were at a severe disadvantage, and became known on Wall Street as "dumb money". The actual value of a company became less and less important. When I was trading, commodities were as yet left untouched by firms like Goldman Sachs and JP Morgan, who were content with manipulating real estate, bond and stock markets. But firms like General Mills did use these algo's for their own purposes. Yet it was still a relatively fair way to determine a fair price of a commodity.. fundamentals (basic supply and demand numbers) still ruled the trading floors, though technicals were increasing in their importance.. at the end of the day, fundamentals always prevailed over technicals.
In the mid 2000's, a new investment vehicle.. the ETF (electronically traded fund) came into being. You could invest money into commodities via these ETF's. The early days of commodity ETF's centered around precious metals, specifically gold and silver, and these funds invested in physical gold on commodities markets as well as firms that produce gold. Peter Schiff was one of the first to invest heavily in the gold ETF and bring it to the attention of the mainstream media. Today, there are ETF's which are for nearly all commodities.. wheat, corn, lumber. These ETF's are traded on the NYSE.. and thus have come to the attention of firms like JP Morgan and Goldman Sachs and their sophisticated algo's. Thus it has come to be that firms like JPM and GS are increasingly in control of the planet's most basic resources. This is a very bad idea. Worse, they have begun writing derivitaves on commodities.
Paul Farrell's recent article on this sends a warning: "Commodity ETFs are rapidly becoming a malicious virus breeding chaos in the global markets pricing all commodities: food, farm lands, metals, oil, natural gas, livestock, water and other natural resources are the assets under commodity derivatives and their ETFs, pricing that's now controlled more by Wall Street speculators than the weather, adding wild swings in volatility and trillions in global derivative risks. And once again the usual suspects, the Goldman Conspiracy of Wall Street Banksters, are in the lead. Today, Wall Street is making a killing on commodity ETFs. And yet at the same time they are rapidly accelerating global market conditions that'll eventually kill the goose that laid their golden egg, those high-profit-generating commodity ETFs. But unfortunately this new ideology, Chaos Capitalism, is rapidly moving past economic pricing wars into military conflicts, a trend the Pentagon predicted years ago, an ever-increasing cycle of global wars over increasingly scarce nonrenewable commodities" http://www.marketwatch.com/story/story/print?guid=887EA1DA-E0AB-4D6B-988E-77A040E56B8E
Rolling Stone's McKenzie Funk focuses on Phil Heilberg, a former AIG commodity trader who is one of the new "Capitalists of Chaos." Heilberg is a self-proclaimed pure Ayn Rand capitalist hustling Africa, making "land grab" deals to control millions of acres and commodity rights in unstable nations. Heilberg "makes no apologies for dealing with warlords: 'This is Africa ... The whole place is like one big Mafia, and I'm like a Mafia head. The essential lesson in capitalism is that no one is actually in control." In this new Chaos Capitalism, there is no rule-of-law, democracy is dead, chaos and anarchy rule.
Back in the 1960's, food went from the hands of farmers to the food producers (General Mills, etc) and then to your supermarket. Simply put, today, JPM, GS and folks like Heilberg have injected themselves in the middle of this simple market system.. and in doing so, will undoubtedly grab for themselves a handsome profit. To me, they are, quite simply, parasites.
"Last year, Goldman Sachs earned $5 billion in profits with commodities alone. Other major players include the Bank of America, Citigroup, Deutsche Bank, Morgan Stanley and J.P. Morgan. They are no longer merely offering classic funds, but are now trading in financial instruments that function similarly to the subprime mortgage loans on the now-collapsed US real estate market. With these instruments, known as collateralized commodities obligations, or CCOs, profits are based on market prices. The higher the trading prices of wheat, rice and soybeans, the bigger the profits" http://www.spiegel.de/international/business/0,1518,708765,00.html
Allowing the world's food supply to be so cruelly manipulated will lead to hunger, instability and riots. This cannot continue. There were riots in several parts of the world when food prices rose in the early 2000's, producing political instability in some nations. Today's drought and fires in Russia and Ukraine have led Russia to halt all grain exports this year, and as a result wheat skyrocketed up by 25% this week alone. Somewhere down the food chain this could have serious repurcussions. But not for Goldman.. whether grains go up or down, they're five steps ahead of you and have already made their parasitic profit.