Death comes to us all. Life's but a walking shadow | Recently, we've seen a spate of high profile hedge funds & traders close their shops or move to different companies after embaressing losses in the past few months. It turns out that some traders were "just lucky" and their luck finally ran out. Historically the top traders & top "Funds" have had a tough time staying on top for long. It turns out that high profile trading or investing is just gambling after all. (My recent copy of Modern Trader has several articles analyzing trading from the prospective of gambling and game theory which it turns out is pretty much what trading is).
But there are other explanations of the current decline in investment in commodities. One of which is: The most recent jobs report show very healthy & sustained job growth in the US. There were also some changes in who are taking these new jobs which suggest that employers will finally need to start paying raises to keep workers. This is the signal that the Fed has been waiting for to begin to raise interest rates.
Two things are going to happen when the Fed raises interest rates even just a little bit.
One, some portion of the money that has been responsible for the sustained growth and performance of the stock market is in fact just "borrowed" money made possible by low (zero) interest rates. When interest rates go up even by a little the marginal profit it has been earning in the stock market will decline to zero or negative. Some portion of this "borrowed" money will by necessity leave the market. This will trigger a retreat and we all know that once started the retreat will proceed by itself due to the very nature of stock investing and momentum. The smart money has undoubtedly already begun to withdraw it's money from the market, unbeknowest & undetected by you or me.
Two, the "old money", the "smart money", "big money" (or whatever you want to call it) in every other country in the world that makes its money without risk will recognize that the safest place will be here in the US, probably Treasuries. They will need to convert their holdings into dollars and that will drive the dollar to new highs.
The questions that remain are : Will some of this money coming out of the stock market get parked in Ag commodities? How much? Will the super strong dollar slow all categories of US exports so much that the export economy will come crashing to a halt and then lead to a collapse of the dollar?
Obviously we can think of other scenarios. This is just one. |
MT's Hedge Fund
