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  1. #1 The real reason commodities are tumbling 
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    JOHN HEINZL

    Globe and Mail Update

    September 10, 2008 at 6:00 AM EDT

    To hear Donald Coxe tell it, the commodity selloff ripping through Canada's stock market is no accident. It is the result of a deliberate, brilliantly executed plan hatched at the highest levels of the U.S. Federal Reserve and Treasury.

    Mr. Coxe is no paranoid conspiracy theorist. As the chairman and chief strategist of Harris Investment Management in Chicago, he is one of the most respected investment authorities in North America. He also happens to have lost about 10 per cent of his personal wealth in the commodity rout, which came at the worst possible time for his Coxe Commodity Strategy Fund that started trading in June.

    “This has done more damage to my personal wealth than anything in the last 20 years,” he said in an interview yesterday. But he has too much respect for how the U.S. authorities engineered the collapse in commodities – a move he said was necessary to shore up the global financial system – to be bitter.

    “My attitude is, goddamn it, they're good … it was brilliant.”

    To understand why commodities are plunging now – the S&P/TSX plummeted another 488 points yesterday – you have to go back to mid-July, when the U.S. Federal Reserve and Treasury first announced steps to support mortgage giants Fannie Mae and Freddie Mac.

    The move, which ultimately led to the Treasury taking control of Fannie and Freddie this week, touched off a chain-reaction of market events that culminated with the wrenching decline in commodities.

    According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets. To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets.

    Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions.

    At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished. The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains and other commodities.

    The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 per cent. “Leverage was being unwound dramatically,” Mr. Coxe said on a conference call last week. “We had a true panic.”

    As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed's wishes, because lower commodity prices would help quell fears about inflation.

    Mr. Coxe has no proof that the Fed and Treasury acted in concert to boost financials and sink commodities. He is basing his assertions on conversations with hedge fund managers and on years of watching financial markets. “There's no doubt whatever in my mind” about what happened, he says.

    The future is less certain, however. Now that Freddie and Fannie have been nationalized, the credit crisis is still very much alive and financial stocks are looking as shaky as ever. As for commodities, once the current storm passes, Mr. Coxe is confident they will recover.
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  2. #2  
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    Mo Friendly from Edmonton, Canada writes: I agree that it was the Fed and Treasury, but I don't agree with the motives. The Fed doesn't care about global financial stability per se. This is the same Fed and Treasure that were instrumental in the Soviet collapse and routing a few hundred billion from that economy. The motives are economic warfare with Iran and increasing McCain's chances to win or steal the election. The US can't fight a ground war with Iran, and they can't bomb them directly or by proxy right now. So they're attacking them the way they can. Lowering the price of the commodity responsible for two thirds of Iran's GDP. Global economic stability? Pshh. The US was built on global economic instability. Having the only significant and intact industrial base and financial institutions in the world after WWII is largely what built the US into the hyper-power it is today.

    * Posted 10/09/08 at 11:37 AM EDT | Alert an Editor | Link to Comment
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  3. #3  
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    The commodity stocks have plunged more like 25 to 30 per cent rather than 10 per cent for the year. A combination of things has resulted in the downturn. The falling dollar, a slow down of economies around the world, commodity usage is down, etc. consumer confidence is down, investors and hedge funds are sitting on the sidelines with cash, huge swings in volatility, etc., etc.
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  4. #4  
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    Quote Originally Posted by lacarnut View Post
    The commodity stocks have plunged more like 25 to 30 per cent rather than 10 per cent for the year. A combination of things has resulted in the downturn. The falling dollar, a slow down of economies around the world, commodity usage is down, etc. consumer confidence is down, investors and hedge funds are sitting on the sidelines with cash, huge swings in volatility, etc., etc.
    Commodities will retain value when currencies don't though, be sure for that.
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  5. #5  
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    Quote Originally Posted by Goldwater View Post
    Commodities will retain value when currencies don't though, be sure for that.
    Spring Wheat capped at $20/bushel,now it's about $8.50/bushel.
    The 21st century. The age of Smart phones and Stupid people.

    It is said that branches draw their life from the vine. Each is separate yet all are one as they share one life giving stem . The Bible tells us we are called to a similar union in life, our lives with the life of God. We are incorporated into him; made sharers in his life. Apart from this union we can do nothing.
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  6. #6  
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    Quote Originally Posted by Zeus View Post
    Spring Wheat capped at $20/bushel,now it's about $8.50/bushel.
    It is one hell of a roller coaster ride if you are heavily invested in commodities. I think we are either at a bottom or close to one. I sure hope so. The current bail outs and the financing of debt by the Feds will probably make Gold a great investment.
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