Tuesday, 20 July 2010

Chocolate to cost more?

Mrs S is in full growl mode. This is because a bunch of hedge funds have managed to corner the worlds Cocoa supply. Because the price of the base ingredient for chocolate has been forced up, it is not unreasonable to assume that the price of almost every woman's favourite comfort food will rise in the near future. Mr Rowntree, Mr Cadbury, Mr Lindt and those Nestlé chaps will have to pay more for the base ingredient, or water down their recipes. All because of finance.

Her first reaction was that such things 'shouldn't be allowed', and some form of regulatory mechanism put in place to prevent hedge funds artificially controlling markets via speculation. It 'wasn't fair'. Now where have I heard that one before?

Hedge funds are in my understanding, masses of money traded around to make more money. They bought and sold Mortgage derivatives before the crunch, now they're doing it with commodities. It's business. Commerce. The market in a given commodity will inflate until it reaches an unsustainable level, then all the 'clever money' will move out and the price of whatever will crash. Sometimes the clever money isn't clever enough and goes poof with everyone else's savings. All the rest of us peons can do is keep on truckin' and stop buying whatever until the market stabilises.

It doesn't matter what the commodity is, the rule stays the same. A value is only what people are willing to pay for an item. If they aren't buying, the price will have to drop before storage cost overhead outstrips profit. Non perishable stocks of course, follow a slightly different set of rules and can tip markets into imbalance. When that happens, the fallout is much worse than with perishables, like Cocoa. As we saw recently by staking the whole economy on property values. You end up with the situation where Price, Net Worth and Value come unglued and then it's sauve qui peut and the Devil take the hindmost.

Some of these financial markets seem to this poor commentator little more than a means for big ego's to keep score. Ever since Ug first decided that a particular valley was his, and maybe a couple of the others he saw on the way over; men, and occasionally women, have played ego games with land and possessions. This has led to the rise and decline of empires, the raising of massive edifices and occasionally the slaughter of millions. Anything set on domination, be it money or a political philosophy, eventually ends up the same way.

People continually try to manipulate markets to make more money. A case in point is the whole Carbon Trading thing, which is no more than a desperate attempt by some very rich people to make more money than Bill Gates, but without producing a real end product. Put money into a propaganda (Marketing) machine proposing that Mankind will destroy the planet unless everyone has to pay 'taxes' for, oo lemme see now, some colourless atmospheric trace gas. Anonymously fund research, usually via various witting or unwitting proxies, that 'proves' your point of view, and recruit a whole bunch of people without real critical thinking skills to fight your battles for you. Natural human tribal polarisation will do the rest. The Carbon goes up in price, and the people behind the proposition get so incredibly rich that their offspring will live in huge mansions and never have to work again. Nothing to do with 'saving the Earth' at all.

The Earth can get on without us. Anyone who does a little critical overview thinking about what causes the rise and fall of empires can tell you that. The ruined proof is all over the world, from Rome to Angkor, Ancient Persia to India and China. If Mankind were to vanish tomorrow, the Earth would still be orbiting the sun, only plus some interesting geological layers for putative alien explorers to puzzle over. It's almost comforting to think that in the long term, we're all Archaeology.

Back to Cocoa and commodities speculators; If Mr Ward and friends push the price of Cocoa too high, there is always the risk for him that people will simply stop buying the product and so impoverish the speculators. It happens. We are transient. Tout passe, tout casse, tout lasse. No matter what; Mrs S will get her chocolate. I will see to that.

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