By Greg Vincent
The developing story of Wall Street's latest scandal could reach into the pocket books of U.S. farmers as hedge funds look to defend themselves. Whether that impact is good or bad depends on the timeframe says, Bill Biedermann, Sr. Vice President of Allendale Commodities in McHenry, Ill.
The question arises from the SEC investigation of Goldman Sachs and whether it committed fraud by ensuring a large mortgage-backed fund would fail. Many large hedge funds were involved in this and the investigation will also focus on them to see if they were part of the alleged fraud. That will bring, Biedermann believes, a more conservative approach to investing.
"Until this all unfolds there could be some bearish impacts. This is a big, big story. The implications of unfolding all of this web is going to threaten all of the hedge funds that participated in this. Those hedge funds have got to be aligning themselves and positioning themselves for the worst-case scenario. They're probably going to be getting off to the sidelines, is our guess. That's probably why you're seeing some market volatility.
"They're going to have get in a position where they have some money for attorneys. You have the SEC investigating and today it sounds like the UK's FSA is also going to join in the investigation. This thing is going to a broad-based investigation and lawsuit.”
In the longer run, Biedermann says investors will look for safer alternatives and that includes finding markets that are more heavily regulated. The commodity markets are a perfect place for this to happen. "In the long run, money will look for a place to go where it feels safe, where it is protected, where it's regulated. All the commodity exchanges are regulated, so this is a good place to put your money.”
Commodities could see more immediate pressure from the early-planting season.
"It's certainly going to cap the potential for this market to rally. Based on history, this good start to the crop tells us that means we'll have a better chance for a better than trendline yield. Probably between now and June it can rally, but maybe 15 cents will cap the rally because of the good start. That June-July weather period is going to be about the biggest chance for risk.”