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Given his lifelong involvement in agriculture, Ken believes this is the most exciting period for agriculture and related markets. The evolution of agriculture as an energy alternative has sparked a keen competition for crop production at a time when food supplies are struggling to stay ahead of demand for an increasingly affluent global consumer.
Whether we are hedgers, speculators, or passive investors, these events have led to changes in the marketplace and how we make trading decisions. These events and the evolutionary changes Ken has witnessed in agricultural markets were the inspiration to launch Morrison On The Markets and share his insights with subscribers who are searching for ways of analyzing markets that cannot be found anywhere else.
Nothing moves a market more than money flows. Capital flows into agriculture and related markets are massive and growing. Agricultural markets and commodities in general have evolved as an asset class, gaining status similar to equities and fixed income as legitimate investment. Whether it is capital needed to build a biofuel facility, derivatives of the feedstock needed to run the plants, pension funds in search of positive returns, or simply a trader looking to make a quick buck; markets related to agriculture are attracting record levels of “new money”. Regardless of your interests in the markets, new challenges and opportunities resulting from this influx of capital requires we consider new tools to the methods we have traditionally used in trading decisions. It also requires we balance our knowledge of the fundamental supply and demand with tools of technical analysis to get the complete picture on what is influencing market prices and trends.
For some perspective about money flows, please consider this. There are two major benchmark indexes currently serving passive investors in search of investment in a broad basket of commodities: Goldman Sachs (GSCI) and the Dow Jones-AIG (DJ-AIG), known as long-only indexes. At the end of 2005, there was an estimated $70 billion dollars invested in funds tracking these indexes. By June of 2007, the amount of investor capital focused on these indexes had grown by 70% to $120 billion. Standard and Poor’s, the rating agency, recently forecast $160 billion will be tracking these indexes in 2008. This is just one component of the professionally managed commodity funds.
An entirely different segment of professionally directed commodity flows are discretionary commodity funds. Unlike the long-only index funds, these are large pools of investor capital that choose to be long or short any given commodity at any given time.
Combined, it is not uncommon for these two classifications of commodity funds to comprise anywhere from 25-50% of the total open interest in many of the agricultural futures markets.
In today’s marketplace, if you don’t know what the funds are doing, you are missing a big part of the picture. While watching the actions and attitudes of the commodity funds is only one of the tools Ken applies in technical analysis, he believes it’s an important part of anticipating the next meaningful trend.
Ken hopes you enjoy Morrison On The Markets as much as he enjoys sharing his daily market insights. Trading commodities is challenging, risky, and even intimidating at times but, above all, it should be fun and financially rewarding.
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