New World Order
By Darin Newsom
AS I WAS putting this piece together, the vastness of all that has occurred over the first decade of the 21st
Century began
to sink in. Formulating where to begin, I was drawn to Dvořák’s 9th symphony (more commonly known as the ‘New World’ symphony). Its four movements are a great representation of what has gone on in this marketplace as commodities
I’m talking about. Readers unfamiliar with the piece, I urge you to find a copy to listen to it while reading this article (I’m listening to it now, as I type). The first movement starts quietly before building into a strained
pace that creates a sense of high drama. Think back; that is how this decade began as well, with the chaos surrounding the events of September 11th
, 2001 proving to be a pivotal turning point in
the markets. Some would argue that this was the day everything changed,
and even now it is (legitimately) used as a major break in the markets’ timeline.
The immediate reaction in commodities was
Crude oil would turn out to be a microcosm of the sector in general, for after posting a low in the October to December 2001
have moved from a chaotic niche segment to a mainstream, long- term investment opportunity. That alone may be the greatest single development of the decade coming to a close, but more on that later. Those of you familiar with the New World symphony will recognize what
Figure 1: Reuters/Jeffries Spot CRB Index
that it moved crude oil to the forefront, displacing gold for a time, as the safe haven of choice with so many of the world’s hotspots revolving around the commodity. Crude oil would turn out to be a microcosm of the sector in general, for after posting
a low in the October to December 2001, the market established a long-term uptrend based on growth that other commodities would begin to emulate. The second movement, the Largo, is a slow, quiet, and at times
mournful piece that is easily recognizable as the theme to the song “Goin Home”. It is a fitting anthem to the devastation to the US Gulf coast wrought by the twin sisters of Katrina and Rita in the fall of 2005. Once again, crude oil was thrust into the limelight as offshore drilling was threatened, but this time it brought natural gas with it introducing a new kind of trader, or maybe it just seemed new at the time, in the hedge fund Amaranth. Amaranth set the stage for many similar funds to follow that would get swallowed up by betting and losing big in the evolving world that was the commodity markets at that time. The third movement starts off mischievously
Source: DTN Prophet X 4 December 2010
before quickly building into something ambitious. This piece best personifies the growth of the commodities industry following the 2005 rule change that basically doubled position limits, throwing the door open to increased investment monies from around the globe. Just as the musical piece finds its way seemingly through a myriad of obstacles, this new breed of commodity traders and investors began to learn the ins and outs and personality quirks that make commodities so intriguing. This learning process would cost
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