From Reuters, Feb. 11:
“Chocfinger” made his name and his money by taking bold bets on cocoa
markets. But after nearly four decades of trading, sometimes winning,
sometimes losing, Anthony Ward threw in the towel.
Ward blames the rise of computer-driven funds and
high-frequency trading for forcing him and some other well-known
commodities investors to close their hedge funds and look for
opportunities where machines can’t make a difference.
While
computerized trading is not new, Ward and others argue its steady rise
has reached a tipping point that is distorting prices and creating
uncertainty not only for investors, but for chocolate firms, carmakers
and others who rely on commodities.
It was in January
2016, after a slide in cocoa prices, that Ward decided the days of
traditional commodity investors doing well from taking positions based
on fundamentals such as supply and demand may be numbered.
“It was just too big, too quick, too dramatic. And completely against the fundamentals,” Ward told Reuters.
Commodity markets fell across the board that month after
weak factory data in China raised fears of lower demand from the world’s
top consumer of raw materials.
Ward blamed the slide in
cocoa on what he regarded as misplaced selling by computer-driven funds
reacting to the Chinese data, given China has scant impact on the cocoa
market.
“The actual fundamentals in cocoa were
extraordinarily bullish in January 2016. We were forecasting the largest
harmattan in history, which is exactly what happened,” he said.
His
prediction that a hot, harmattan wind from the Sahara desert would hit
harvests in Ivory Coast and Ghana and drive cocoa prices higher did come
to pass - but not before the fund had been forced to cut its losses
when the market slumped.
At the end of 2017, Ward closed the CC+ hedge fund that had invested in cocoa and coffee markets for years.
And
at the end of January, commodity hedge fund Jamison Capital Partners
run by Stephen Jamison closed. He told investors that machine learning
and artificial intelligence had eliminated short-term trading
opportunities, while commodities did not offer obvious benefits in the
long term.
Also in 2017, renowned oil trader Andrew
Hall, who earned $100 million in 2008, called time on his main Astenbeck
Commodities Fund II.
He had said in an earlier letter
to investors that extreme volatility caused by “non-traditional
investors and algorithmic trading” made it difficult to hold onto
long-term positions when the market moved against them.
In
2016, Michael Farmer, founding partner of the Red Kite fund that
specializes in copper, also accused high-frequency traders using
super-fast computers of distorting the market and getting an unfair
advantage....MUCH MORE
