CHAPTER 8

Mutual Funds and the Evolution of the Commodity Markets

FROM FRUIT BASKETS TO BASKETS OF FRUIT

The old truism that “the more things change, the more they stay the same” is as accurate for the commodities market as it is for nearly anything. In fact, having the perspective of how the commodities market began may provide the greatest appreciation for the current market vehicles available for the investor today. In much the same way that I'm quite certain Dr. James Naismith would be astounded to see not only the game of basketball today, but the industry surrounding it, so too would the early users of McCormick's reaper be impressed with the efficiencies that wheat is exchanged in today's markets. In both instances, however, the “game” maintains many of the same nuances, but packaged in such a way that would at first seem unrecognizable to the initial purveyors of the craft.

After all, it was in the 1840s that Chicago became a commercial center where farmers and dealers could meet to deal in “spot” grain. At the time it was simple to exchange cash for immediate delivery of wheat. This was the point in time when railroads, telegraphs, and the McCormick reaper provided a confluence of both supply and widespread demand. The reaper led to exponentially greater wheat production, while the railroads and telegraph allows farmers of the Midwest to sell their wheat to dealers who then shipped it all over the country. Where previously the farmer was at the mercy of a city with very ...

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