random notes

Monday, August 04, 2008

Signs of unusual behavior abound across the commodities markets. Take cotton, for example. In late February, the price of cotton futures jumped by 50 percent within two weeks. But cotton farmers haven't even been able to sell half of their harvest from the previous year yet. Warehouses in the United States are fuller than they have been since 1966. Indeed, all signs point to a price decline.

In a statement to the US Congress, the American Cotton Shippers' Association blames this "irrational" development on "speculators driving up prices." According to the trade group, cotton processors would never pay the fantasy prices being quoted on the commodities futures exchanges.

Two worlds have developed. One is the world of the traders at hedge funds and investment companies, and the other is that of farmers, grain dealers and mine operators. They may be dealing in the same commodities -- barrels of oil or bales of cotton, for example -- but for some these are nothing but abstract concepts while others see them as down-to-earth products.

... the day an asteroid may hit wall street ...
... will be always too late ...

A classic archetype for all future panics is the Dutch tulip mania of the 17th century. In 1636, at the height of the bubble, the most highly coveted bulbs, such as the Viceroy and Admiral van der Eyck species, commanded prices on par with the cost of an entire house. All social classes succumbed to the hysteria. Contemporary paintings depict butchers, guards, shipping agents, students and chimney sweeps trading the bulbs in taverns.

But then the Dutch public's faith in a permanently golden future for the tulip collapsed. At a tulip auction in the city of Haarlem on Feb. 4, 1637, not a single finger was raised when the first bulb went under the hammer. The auctioneer dropped the price, but still no one moved. This led to a widespread selloff of bulbs, causing prices to plummet.

The country plunged into a deep depression. As is so often the case after overheated speculation, the government had to step in and banned the use of futures contracts, which was already customary at the time. Preachers castigated the speculators from their pulpits, calling the affair "God's punishment for the blasphemous greed and stupidity of the masses."

... and one in chicago too ...

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# posted by intcoex : 6:35 AM

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