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East Central Illinois | "Bang and Splash" Recognized at Forum
Pat Hill called in to Market Matters Friday morning with more exclusive coverage of the topics being tossed around at the 2008 USDA Agricultural Outlook Forum. One of the most interesting discussions was led by a Chicago broker and analyst, Lonn Taffel, who brought up the havoc "managed money" wreaks on grain markets.
Mr. Taffel, of Cadent Financial Services, threw a conversational grenade out to the crowd during the Grains & Oilseeds Outlook session Friday morning. He claimed, "It is very unfortunate that we have so much fund money in the markets. It causes the prices to be divorced from fundamentals."
That may not have surprised anyone, but Taffel went on to provide some details, estimating there is at least $160-$180 billion in commodity markets being managed by computer-based hedge funds in the category the CFTC calls "noncommercial" traders. There is also somewhere around $160 to $200 billion held by passively managed index funds. These are players, Taffel says, to which everyone should pay very close attention when they rebalance. Their activity tends to take place during the first 5 and last 5 minutes of each trading session. More importantly, they timed a major influx of money right when the stock markets started slipping, and that, Taffel says, is when we started seeing the recent "bang and splash" in grain prices.
One audience member responded by asking Mr. Taffel's opinion about whether or not the elevator system was threatened by this kind of speculative inflammation. That, he said, was "more difficult to answer than ever before, but as of right now, Chicago is still the only game in town."
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Managed Funds Market Havoc Article
