by Harrow

You usually don’t read the business section of the newspaper for laughs, unless you’re reading quotes on the economy from Bushco. But I got a good chuckle when I picked up yesterday’s Globe and Mail. In the previous day’s edition, there was this:

It’s proverbial wisdom in the stock market that when the base metal stocks such as copper and nickel are soaring in price, it is a sure sign that the economic cycle is about to peak and it is time to take profits.
…
But that is not Mr. Gignac’s view. He is confident that the rally is sustainable, helped by growth in China and India, ample liquidity provided by the central banks in the Group of Seven countries and continued moderate growth in the United States.

The very next day, their story changed somewhat.

VANCOUVER — High-flying metals prices and mining stocks thudded back to earth yesterday, dragged down by factors that included a stronger U.S. dollar, worries about slowing demand in China and signs that shortages of some metals, such as copper, could soon ease.

Wow, what a difference one day makes!

I especially like how it was China’s fault either way. If and when a serious economic crisis hits the US, there’s going to be a lot of opportunistic demagogues pointing their fingers overseas and bellowing about the yellow peril. Maybe another way of interpreting this is that China has become so huge and voracious (it surpassed Japan as the world’s third biggest trader sometime earlier this year), it can drastically affect the world economy one way or the other, depending which side of the bed it got up on that morning. At any rate, there’s another peril much closer to home:

Analysts said the rout was aggravated by the increased influence of institutional investors such as hedge funds, who stepped up their activity in metals markets to offset disappointing returns in other sectors. The presence of these large traders has helped push commodity prices higher but has also led to more volatility.

“We have unleashed a horrible monster of liquidity,” said John Ing, president of Toronto-based investment dealer Maison Placements Canada Inc. “With interest rates where they are, and stock markets such miserable performers, there have been a great number of these hedge funds or commodity funds created, because that’s where the action has been.”

I’ve heard that hedge funds are increasingly dominating the stock market. How long until the next business section flip-flop?