17 September 2012

When Big Boys Play Hardball, Small Fry Had Best Clear the Field

Economic markets are experiencing significant uncertainty and volatility. Europe and the US are on the sharp edge of recession. The world reserve currency US dollar is slowly sinking under fiscal and monetary mismanagement, Japan is in a chronic state of stagnation, and China is becoming one big question mark.

Many of the big traders and funds are fleeing to commodities as a safe haven, but the same thing was happening in the first half of 2008, just before the huge slump in commodities prices. Large numbers of funds (hedge, pension, university endowments, etc) suffered losses into the billions when that fiasco failed to show up on their radar screen.

On the one hand, many analysts see big gains in global commodities -- and bullish wagers on the commodities futures markets are said to be at a 16 month high. Recent big stimulus announcements from the US, China, and Europe appear to bolster this view.

On the other hand, respected China economist Michael Pettis is predicting a hard crash in commodities prices by 2015 at the latest. Pettis bases his prediction upon his perception of the actions which the Chinese government will be forced into taking to avoid total catastrophe.

Is it possible that some big analysts, traders, and trading houses would talk up commodities futures -- while at the same time hedging against catastrophic collapses in commodities prices? Of course. Public pronouncements are one thing, but profit-making and financial survival are closer to the heart.

Take Ray Dalio, head of top hedge fund Bridgewater. If you read Dalio's PDF outline on How the Economic Machine Works, or watch the videos at this link, you can get an idea of how one of the world's top hedge traders approaches global markets. But is Dalio telling us everything he knows?

Of course not. Much of the information Dalio provides is most insightful, and some of it is even useful for smaller traders and ordinary observers of markets. But the closest that Dalio comes to truly opening up, is when he talks about the need to put a significant part of one's personal portfolio in gold or similar hard currencies (see the Q&A toward the end of the CFR video).

Big traders and big trading houses are in business to make profits. When they make public announcements, they make them for the purpose of influencing public and political actions in ways that will help them make more profits.

This self-interested nature of public pronouncements also applies to any other large organisation that is seeking power and/or profit. Such as big media news organisations, governments, environmental organisations, large foundations, political lobbies, universities, popular mass movements, etc. Always take their public pronouncements with several grains of salt. Most of them have the money to put up smoke screens and misinformation campaigns from here to eternity.

When the financial news reports the pronouncements of the Federal Reserve or big money traders and trading houses -- those should be treated no differently than a political speech by Obama. Don't bet your future on it, whatever you do.

If you have not bothered to inform yourself independently of such public skanks, you are going to have problems knowing what is real, as things get a bit more frantic. Be careful. If you can still learn to make yourself dangerous to those who do not have your best interests at heart, you had best do so.

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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