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Credit Crunch Panic Pounds Commodities
By Mr Ethanol | March 18, 2008
Guardian:
Fears of a growing credit crunch spread panic in U.S. grains and other commodity markets on Monday as the stunning collapse of Bear Stearns raised questions over the financial health of investment funds that have driven these markets to historic highs.
Bear Stearns, the fifth-largest U.S. investment bank and a player in the subprime mortgage collapse, was bought by JP Morgan Chase over the weekend at a fire-sale price of $2 per share - far below the company’s closing share price of $30.85 on Friday.
“We’re going down with everything else,” a Chicago Board of Trade trader said, referring to the grains market. “It’s just a debacle the way some hedge funds were leveraged, and it’s the banks’ fault for loaning them the money.”
Shares of MF Global , one of the world’s largest futures and options brokers, fell as much as 70 percent on Monday on speculation the firm had liquidity problems. MF Global said it had $1.4 billion in committed, undrawn credit lines and no exposure to subprime mortgage-backed securities.
The U.S. Federal Reserve held an emergency meeting over the weekend to gear up for a deep cut in interest rates, scaring market players across the globe.
“There are waves of selling taking place across the whole commodities arena as people try to adapt to the lower exchange rate and the shaken confidence in the equities market as well,” said Gavin Maguire, analyst for Iowa Grain.
Investment funds had been buying huge chunks of grain futures and other commodities over the past couple of years on a perceived flight to quality and a hedge against inflation. Full article.
Topics: Market, News, Prices |
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