Tom Scollon
Chief EditorThe last few days have demonstrated how merciless the markets can be. In the last several months – in fact over the last three years – we have seen how perky the market can be. But now we see a very different mood.
Average, blameless shareholders caught up in the swirl of the last few days could be forgiven for thinking that this is the end of the world. Not quite – in fact it is a temporary aberration, caused by the hedge boys.
Resource prices have been forced ever higher by over-exuberant hedge fund managers. Their positions have been highly speculative, and the artificially high prices were starting to bear little relationship to the world we live in.
The cute hedgers who have been pushing prices to an extreme decided to short the market a few days ago. That is, first they borrow script or positions they do not own and sell them to the unsuspecting. Then, having sold the living daylights out of a market, they decide to buy these positions back at a cheaper price and return the script to the original owners.
So they laughed all the way up the curve, and all the way down!
Have they finished? Probably not, but in any case it would be a brave investor who would test the resolve of the shorts right now.
Remember, you do not have to pick the top of a run up, nor the exact bottom of a run down. The average investor will do well picking the big chunk of the trend in the middle.
So it is best to await confirmation that the downward trend has concluded, otherwise there could possibly be more punishment in store.
Enjoy the ride
Tom Scollon
Chief Editor