Are commodities traders running the risk of a showdown with the government?
Earlier this week, Bloomberg columnist Matthew Lynn penned a commentary that pegged commodities trading as "banking's new battleground." After a wicked week of commodity volatility last week with wild swings such as iShares Silver Trust's
Now there is a backlash building. The banks should take note of that. If they don't, they could easily be driven out of this business -- and they will only have themselves to blame.
There's certainly a compelling story for the anti-commodity-trading crowd to tell, complete with tear-jerking starving-baby references. As Lynn puts it:
It would be easy to dismiss those protests as nothing more than the complaints of a few anti-business fringe groups and grandstanding politicians. Easy, but wrong. In reality, there is a serious issue here. Speculation in commodities isn't like trading in financial instruments. People don't eat Nestle SA (NESN) shares. They don't need Treasury bills to keep their factories running. The prices of those instruments can jump around like crazy without it affecting people's lives.
As far as the potential for this to boil over, I fully agree. Furthermore, I think the pressure will continue to build over the rest of the year. As I've followed the earnings reports from consumer staples companies such as Procter & Gamble
For the most part, these companies haven't really started a serious price-raising campaign yet, but many have announced plans for price increases. And what happens when consumers suddenly find themselves paying more for that case of Pepsi, package of P&G's Pampers, or box of Kellogg's
If it's like everything else that goes wrong, they'll likely look for someone to blame. With Wall Street still a favorite punching bag, the commodity-trading departments of Goldman Sachs
Not that I actually believe that the government would ever ban commodity trading. And that's not because I think that Wall Street will take up Lynn's advice and mount a compelling PR campaign in favor of commodities trading. It's simply because Washington is too inept right now to get something like that done even if it were warranted (and I'm not convinced it is).
But let's hear what you have to say. Do you think there's a case for banning commodities trading on Wall Street? Scroll down to the comments section and weigh in.
Kellogg, PepsiCo, and Procter & Gamble are Motley Fool Income Investor picks. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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