Monday, October 08, 2007

Trading in rumors

The more I learn about the way stocks and commodities markets function, the more it strikes me as a cross between legalized gambling and a junior high school lunchroom. Everyone seems to be playing for high stakes based on the prevailing gossip of the day.

Take for example the recent run-up on wheat and other commodity prices. Wheat futures approached $10 per bushel on the Chicago Board of Trade, and wheat prices topped $10 per bushel in the Portland grain market, because buyers and traders were worried about the global supply of grain due to wheat problems in places like Australia. But lately, the futures prices have started dropping.

Why? Because the U.S. dollar is getting stronger against foreign currencies, thus making it more expensive for other countries to import U.S. goods. But global grain supplies haven't suddenly improved.

What's most interesting is that the price swings have for wheat have been dramatic. There is a 30-cent per day limit on price swings on wheat, which was huge when wheat was trading about $4 per bushel, but now at $8, $9 or $10 per bushel, those swings aren't as massive, but the fact that the trading limits have been reached several times in recent weeks is quite interesting.

Got to love those folks on the trading floors of the major U.S. markets. They are nothing if not melodramatic. Maybe that comes from having a job that forces you to stand in a pit and shout at people and gesture wildly to get noticed in flurries of activity and make financial decisions based on who is whispering what about whom.

I can't help but chuckle and scratch my head. The more I learn about how all that financial stuff works, the more it makes absolutely no sense to this simple ol' country boy. It makes about as much sense as social dynamics among teens and preteens. Just because the people involved are wearing expensive business suits doesn't change how silly it all looks to an outsider.

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