Wall Street Rhymes
28th July 2010
This is getting too strange.
I observed a recent Wall Street story that was a near perfect match for a much older Wall Street story from a book by ‘Adam Smith’ (the pseudonym for George Goodman) called “The Money Game.” Both featured young quants, computers, and confidence. The more things change . . .
Now, today, this NYT story about cocoa.
In a stroke, a hedge fund manager here named Anthony Ward has all but cornered the market in cocoa. By one estimate, he has bought enough to make more than five billion chocolate bars.
Holy Harmonics, Batman! This repeats, chapter and verse, another story from ‘Adam Smith,’ on the Great Cocoa Caper. Smith outlines his involvement in a complex trading scheme with cocoa futures in the 1970s. He, too, thought he had cornered the cocoa market and stood to reap a whirlwind of profit, but stronger forces and cooler heads prevailed. Mr. Smith and his partners found themselves inheriting a different kind of whirlwind instead.
Right now, everyone is admiring the newest Cocoa King, but he hasn’t cashed in his winnings just yet because this is the futures market, baby, and you never win in the present. Time will tell which way the wind blows. But, Mr. Ward is apparently following the same strategy of Smith et al. back in the 1970s. The big pay day bet on cocoa is to go long on disaster: Rain! Revolution! Pestilence!
Wait for October.
In the meantime, worry about sunny days, friendly relations, and, off-stage, the Big Boys who don’t bet on cocoa, but who are in the chocolate business.
As Mark Twain observed, “History doesn’t repeat itself, but it rhymes.” Given the rhymes to “The Money Game” and “SuperMoney” I wonder what the future holds.
Just as All Bad Persuasion Is Sincere, so too: All Bad Investing Is Sincere.