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Author: 
KHALID I NATTO
Publication Date: 
Thu, 2011-06-16 02:39

We are talking about the E-Coli scare that lead to hundreds of millions of losses in terms of European Agriculture products.
It seems that when the underlying asset is a commodity like a farm product, then the market is quick to devalue it.
Totally absent from the usual chorus of the media were the voices of controlling the market or soft landings.
The prices went directly to zero and the farm products were piled in heaps of garbage.
We at The KIN Consortium found this too be a refreshing change of pace.
While we of course offer our sympathy to the farmers who endured losses in Europe, we must confess that this was the first time that the dynamics of the market offered an air of Fair Market Value (FMV). For those of you loyal readers who have been following our discussion on Artificial Demand, we believe this is an ideal case study for natural versus artificial demand.
The High Frequency Traders (HFT) and their leverage are not real customers to commodity, currencies, or equities they are merely speculators.
However, if the European cucumber is traded on an exchange, then HFT could keep the prices up even as the actual products were rotting in a garbage heap.
Please don’t assume that commodities are not traded on exchanges.
We literally trade oranges, rough rice, corn, wheat, cattle, and a whole host of others.
Kindly refer to our recently published articles on the manipulation of wheat prices.
The question is why do currency and equity markets need a controlled soft landing, when cucumber prices are trading like a free market? For instance, let’s take the Japanese Yen and the Japanese crises as a case study.
The Yen has literally risen to an all time high despite a series of events that has ground their industries to a halt.
It should have tumbled to an all-time low in the midst of the chaos, much like the farm products did in the recent European E-coli scare.
As our frustration with the inequities of the markets begins to climb, we search for regulators or international organizations for some kind of cure.
We are sorry to report that the IMF is very busy with hackers, rape cases and hiring a new CEO.
The World Trade Organization has not been featured in the media for a very long time.
The various regulators are trying to enforce Basel III, Dodd Frank Bill, and the new higher margin requirement for commodities.
In this air of uncertainty, we anticipate a great deal of volatility.
We are using tempered enthusiasm when we recommend gold to our clients, because of the recent rise in the margin requirement.
However, it does seem to be the best likely candidate to win in this environment of uncertainty.
The second asset that I would recommend is oil, simply because unless the doors of revolving credit close to industry around the world, then we are certain they are all going to need energy.
In fact, we stated that the inflationary pressure of oil on the cost of transportation would likely lead to new manufacturing facilities closer to the point of sale, which means local jobs closer to the final consumers.
Both consumers and manufacturers demand that the doors of revolving credit must stay open.
That is the silent code of all the charlatans, businessmen, bankers, and politicians.
Keep the liquidity flowing in an environment of fear, perpetual defaults, and systemic failure. Everybody gets paid and we will call it “Kicking the can down the road.”
However, if its food like cucumbers then they devalue the product and realize the losses.
Actually, if we think about it they are probably going to subsidize the agriculture industry even further.
Austerity measures are probably going to be either ignored or delayed.
Let’s take this moment in time and simply examine the initial reaction of the markets in terms of European Agriculture.
This is the first honest market reaction that we have witnessed in a very long time.
We at the KIN Consortium anticipate that government farm subsidies are going to increase in Europe and the US, along with the rest of the world such as the growing farm subsidy program in the Kingdom converting deserts into farms.
The trend is literally government subsidization on all fronts as each respective country attempts to build self sustaining economies in a world that is complaining about inflation and market manipulation.
Let’s cite a few examples like the Japanese government owns Japanese bonds and I assume it rallies its own currency, despite the G7 efforts at bringing down the Yen.
Keep in mind that Greece just got its rating reduced again to CCC by Standard & Poors.
Individual states in America have risked municipal defaults and a loss of international credibility, while praying for the federal government to bail out the states.
The federal government will hit the limit to their own respective credit ceilings and risk further degradation by Moody’s, S&P, and Fitch.
Finally, the US federal reserve seems to be standing on principle as they have refused to prop up federal bonds with artificial demand with the ever illusive Quantitaive Easing 3.
All I can see in this market environment is oil and gold at this moment, along with of course the use of risk management and option strategies.
It is absolutely imperative that all investors utilize appropriate hedging strategies in all of their investments.
Kindly speak to your investment advisers prior to making any investment decisions, so that they might determine your level of suitability for the investments.
— —  Khalid I. Natto, [email protected], is chairman & CEO of The KIN Consortium

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