If you’re like me, you know people who fixate on small changes in the price of things. Like gas. Or a box of Oreos. Or, say, frozen concentrated orange juice futures. Which are up 42% this year. Because… supply, demand, crop reports, global warming, and Clarence Beeks… Clarence Beeks?!?! Yes.
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A herd of 300 well-dressed people are packed into a downtown hotel to hear JP Morgan analysts discuss their best recommendations for stocks in the power, energy, and renewables sector.
At coffee break time, suits poured out of ballrooms and jumped on phones to share new insights, tips, and points of view about certain stocks. I think I heard the gal from Franklin Templeton say, “Get back in there and buy, buy, BUY!”. I said a little prayer for her.
At the end of this two-day event, hundreds of people from thousands of funds tasked with creating wealth for millions of people are going to buy the same stocks in mostly the same proportions. Very little separates one investor from the herd. Which leads to herd mentality. Which leads to very undifferentiated returns.
How do you sweet juice from homogenous concentrate? As luck would have it, I macha-ed with a friend of mine who explained it to me. He’s a supes senior business reporter who’s so connected, he golfed with Obama last month. “Charles, do you think _____ [name redacted so as not to get anyone in trouble] is smart?” Before I could answer, he answered, “Yeah, he’s smart. But’s he not *that* smart. It’s all inside stuff these days.” He may as well have been Chevy Chase talking about ball bearings in Fletch.
“I write stories every day that I can’t share. Not today anyway. They’re embargoed.” Embargoed means someone tells you a story before the public knows about it and lets you write about it as long as you don’t say anything until you’re allowed to. It’s how reporters can consider the big points in, say, a big merger and get their story just right and release the story seconds after the deal is officially announced.
My friend, (who I’m going to call,) Kevin, is a throwback guy. “I knew that this big marketing company was just about to sign a huge… company-transforming huge… deal for a week before it was announced. The day the news broke, the stock popped 39%.” And, I paid for the matcha. Stupid. Stupid. Stupid. “I didn’t trade on that. I can get tickets, hotels, flights, freebies you can’t imagine. I don’t take them because that wouldn’t be right.” I felt better about paying for the matcha.
While I tried to remember if I hit the button for a 20% or a 30% tip, he muttered something about integrity and conflicts of something. My mind drifted to a story from maybe twenty years ago. I was working in private equity and chatting with another PE during a coffee break at a JP Morgan media conference. He told me his hedge fund friends laughed at us. A guy in his late 20s worked for a big fund that traded public equities. He had a big position in a publicly traded conglomerate that owned some media. He knew the guy who ran some industrial product division. Every month or so, he would call and ask the guy how sales were tracking. And, worried about the hedge fund selling lots of shares which would send the stock price tumbling, this conglomerate guy told the hedge fund guy sales numbers that no one else knew. Unshackled from ethics, or guilt, or integrity, the hedge fund guy traded the stock with at least some material inside information. Don’t kid yourself, nobody is that good at randomly walking a trail of breadcrumbs.
He got a nice return. At least a nicer return than standing around the lobby of a moderately-priced midtown business hotel hanging on every word an analyst said about recycling stocks.
So, why are frozen concentrated orange juice futures up so much? Axios asked Uriyoán Colón-Ramos, an associate professor of nutrition and global health at George Washington University, “Changing weather patterns and floods.”
We’ve all known about those for years. The real question, of course, is “Why now?” And, that’s not complicated. “More buyers than sellers,” my former colleague, Joe Cortese. That may explain why the Franklin lady was smiling. Respect.