A History Lesson We Should Never Forget
Sep 14, 2011
I wanted to take a quick moment to reflect back on recent history. It is as if America and Europe have switched places almost three years ago to this day. I was always taught to embrace and learn all I could about history so as to better avoid common mistakes and pitfalls that others have endured. I hate to point out the obvious, but it was on September 13th of 2008, a Saturday to be exact, that Timothy F. Geithner, the president of the Federal Reserve Bank of New York called a "special" meeting to discuss the future of Lehman Brothers, which included the possibility of an emergency liquidation of its assets. There has been countless speculation on the nature of that meeting, who was present, who was actually involved, who was pulling the strings, who was not allowed to be present, and specifically how it all played out... All I can tell you is that shortly before 1:00 am on the following Monday September 15th, Lehman Brothers was forced to file for Chapter 11 bankruptcy protection and what ensued was a massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies across the board. The filing marked the largest bankruptcy in US history, and is thought to have been the key domino to have fallen in what is now considered one of the worst global financial melt-downs in our history. It was on the afternoon of September 15th, three years ago almost to the day that Lehman Brother shares tumbled over 90%. The Dow Jones closed down by over 500 points, which at the time was the largest drop in a single day since the days following the attacks on September 11, 2001. I hate to bring it up, but we also must remember what happened to corn prices thereafter, when the "money-flow" dried up. As a reminder, you should remember that it took less than 60 days for corn prices to fall all the way back to $2.90 per bushel. This is the same summer of 2008 where price for corn for the first time ripped to almost $8.00 per bushel. Guess what??? Here we are again, money-flow is getting extremely nervous, and Timothy Geithner is being called to another "special" meeting. This time it is not so much about the US, but rather our European counterpart. We all know first hand how important "money-flow" has become to overall price appreciation, so we have to make certain we are prepared for any such event that could rock the boat. Just remember, we had no idea back in 2008 that prices would fall as rapidly as they did, or that the big boy's would so quickly pull all of their chips off of the table. I remember many advisory services and traders touting that corn would soon be at $10.00 and soybeans would soon be well above $20.00. I am not writing this to scare everyone, I just want you to remember that things are not always as they appear. You have a business to run, and when profit margins present themselves you need to take advantage of these opportunities. Yes, times are good, and the money-flow has helped us reach some very favorable levels, but just as the markets and the money-flow giveth the markets and the money-flow can taketh away. Learn from past history, limit your downside risk and secure your rewards with prudent hedging strategies and cash sales. I hope for all of our sake nothing come to fruition, and that we are able to weather another financial storm, make it through these times unscathed. All I can say is keep your fingers crossed, and make sure you are prepared with proper risk strategies in place. There are some great services out there that can help you build good risk-management strategies, if you need the help I urge you to give them a call. I am just of the belief if you are any less than 50% sold in these type of waters, with these types of profits on the table you are taking excessive unneeded risk.