Tuesday, February 05, 2008

Scary times are good...

If you are the CME.
CME Group Inc., the futures market trying to buy the New York Mercantile Exchange, said fourth- quarter profit almost doubled on record trading fueled by concern the U.S. economy will continue to slow.

Net income climbed to $201 million, or $3.75 a share, from $103 million, or $2.91, a year earlier, Chicago-based CME said today in a statement. The world's largest futures exchange was expected to earn $3.58 a share, according to a survey of 14 analysts conducted by Bloomberg.

CME under Chief Executive Officer Craig Donohue, 46, has seen volume surge as investors increased their use of futures contracts to hedge positions or speculate on how interest rates, commodities and equity indexes may move. [More]
This flight from risk and the relative boom igniting commodities have attracted a lot of attention from people who need to get a return from cash. As super-safe government paper yields even less than inflation, unsatisfied investors are agonizing about taking on more risk. Commodities seem attractive, especially since you now have to scroll back many months to find really nasty downturns.

And ditto for farmland. Consider this front-page story in USA Today.

Meanwhile the Pied-Piper of commodity index funds, Jim Rogers, is parlaying his early jump into commodities into oracle status. And investment advisers are listening.
In a recent interview with Bloomberg ( January 7, 2008 ), Jim Rogers , known by many as the world's expert on commodities investing, reaffirmed his positive outlook on commodities. He stated that ``All commodities are going to be in much shorter supply for another decade.'' Rogers indicated that in the event of a global recession, agricultural commodities may be the best investment among commodities.

The findings of the Yale study and others have triggered huge changes in the financial industry---many which affect you. Investment companies are increasingly creating new investment vehicles to enable individual investors to participate in commodity investing. Today there are easily accessible ways for you to invest in commodities and to find which investment vehicle is right for you. Anyone can now invest in commodities in low-cost and easy ways that were not available during the last commodity bull market. [More]
Perhaps more startling is the harsh outlook Rogers is broadcasting for the US economy.
"It’s going to be one of the worst recessions we’ve had in awhile because we had so many excesses going into it," Rogers, a noted commodities trader and contrarian investor, said during an interview with Bloomberg Television from Singapore yesterday (Monday). " It’s going to be bad for all of us as currencies come under more and more stress and we have more inflation in the world."

Rogers, a best-selling author and the chairman of New York-based Rogers Holdings, was particularly tough on the U.S. dollar. He said that both the United States and United Kingdom governments have been lying about inflation, which is much worse than official statistics show. And the fact that the U.S. Federal Reserve has been cutting interest rates while other central banks have been tightening credit has likely fueled inflationary pressures, weakening those currencies even more, many contrarians believe.

"I hope by the end of this year all of my assets will be out of the U.S. dollar," Rogers said. "The dollar is a currency that’s terribly flawed and it’s going to be under duress for many years to come." [More]
I am undecided on how valid such predictions could be, but celebrity status has an effect in big money arenas as well as politics. The tricky thing here is as more investors buy into this forecast - forsaking US investments, dollars and real estate - the more likely a really sharp downturn becomes.

This is why despite the underlying soundness of our economy, bad things can happen due to the breathtaking mobility of our wealth. Even though we seem to be in a good spot here on the farm, future economic turmoil will not leave us unchallenged, and our families and friends outside ag will make our relative prosperity actually uncomfortable.

Still want to "tell the farmer's story" now?

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