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Jul 9, 2006 7:26 pm

I could really use some help, so that i can understand these topics better.

I was reading Barron's and was a little unsure of a few topics discussed.

I'm new to the business so the simpler you can explain them the better.



1: Why would you use commodities to hedge against inflation?



2: Why did the market tank over 100 points on Friday? From what i read

corporate earnings are strong , I understand that the ADP results were

weaker than expected but I did not forsee that big of a drop. Also, why

did 3M have such a large impact on the market falling the way it did?



Please don't respond if you are just going to call me a moron for asking

questions you know the answers to. NASD I know this is just a sales job

and I should just be asking sales questions, but theres nothing wrong

with trying to learn.

Jul 9, 2006 7:42 pm
keith121883:

I could really use some help, so that i can understand these topics better.
I was reading Barron's and was a little unsure of a few topics discussed.
I'm new to the business so the simpler you can explain them the better.

1: Why would you use commodities to hedge against inflation?

2: Why did the market tank over 100 points on Friday? From what i read
corporate earnings are strong , I understand that the ADP results were
weaker than expected but I did not forsee that big of a drop. Also, why
did 3M have such a large impact on the market falling the way it did?

Please don't respond if you are just going to call me a moron for asking
questions you know the answers to. NASD I know this is just a sales job
and I should just be asking sales questions, but theres nothing wrong
with trying to learn.


You're not a moron for having questions. You're a moron for asking irrelevant questions. Use your time and our time more efficiently by asking questions that are relevant. If you start having theoretical conversations about one day moves in the market, you're gonna have a book full of morons. Don't do that.

Jul 9, 2006 7:53 pm
keith121883:

I could really use some help, so that i can understand these topics better.
I was reading Barron's and was a little unsure of a few topics discussed.
I'm new to the business so the simpler you can explain them the better.

1: Why would you use commodities to hedge against inflation?

2: Why did the market tank over 100 points on Friday? From what i read
corporate earnings are strong , I understand that the ADP results were
weaker than expected but I did not forsee that big of a drop. Also, why
did 3M have such a large impact on the market falling the way it did?

Please don't respond if you are just going to call me a moron for asking
questions you know the answers to. NASD I know this is just a sales job
and I should just be asking sales questions, but theres nothing wrong
with trying to learn.


Commodities are a classic hedge against inflation because they rise in value with inflation--so if you fear inflation you might buy something like gold which, according to theory, will rise in value with inflation.


If you're wrong at least gold is not going to spoil, you can store it for a future day.  That can't be done with most traditional commodities.


A sensible way to do this would be to buy a fund that trades commodity futures--let a professional buy and sell the pork bellies, wheat, etc. rather than trying to do it yourself.


The reason the market went down on Friday in spite of decent earnings reports?  North Korea was saber rattling and the traders in New York were reminded that the city is a target--they didn't want to go home long, so they sell to lighten up their holdings.


The decline was not that great so it was probably as much a "buyer's strike" as well as a desire to sell--but really everything was pretty much in balance wtih a little bit of a skew to the sell side.


One of the lessons of history regarding Wall Street is how quickly wars can occur---and investors don't like wars any more than the next guy.


Things in Israel are tense right now too--years ago there was an entire war fought over a weekend.  That made Wall Street traders very nervous so it is not uncommon for them to lighten up going into weekends--especially if things are tense in the Middle East.


One of the things that makes this such a great job is that you have to know what is going on all the time.  Instead of waking up and turning on the radio to some shock jock type program experienced, and successful, brokers will turn on CNBC or Bloomberg to find out what's going on in the world.  They'll want to know what's going on in London, how Hong Kong closed and a host of other things.


There is no room for being a dumb ass in this business.

Jul 9, 2006 7:54 pm

Thanks buddy. If you dont have the answers you are wasting your time

posting. I dont feel my questions are irrelevant, i'm just asking a seasoned

pro to help me to understand 3M's impact on the decline in the market as

well as why you would use commodities as a hedging strategy against

inflation.

Jul 9, 2006 7:59 pm

Sorry NASD that last post was written for Cranky Sob. You must have posted

while I was typing. Thanks so much for the info , I really appreciate it.

Jul 9, 2006 8:21 pm

I don't follow MMM at all, so I just looked at it for a moment.


It lost 10% in value on Friday, that's a huge drop and it's a wonder that the Dow didn't do even worse.


It was nothing other than a profit warning, not even an actual report.


In recent years corporate governance rules have dictated that companies issue comments about how things are going--these can be either encouragement or warnings.  The idea is that everybody--large investors and small investors alike--should know the same things.


Anyway, it's been a mixed blessing.  Sometimes a company will crash like MMM did when all that they were trying to do is warn that analysts may be a bit too optimistic about the current quarter or the ongoing potential, whatever.


This is information in a vacuum to a certain degree since the actual numbers are not out--but the traders will almost always take it to mean that the numbers are going to be bad.


With MMM the next thing to watch for will be analysts coming out and saying (paraphrased) "I don't care what they said in their warning, I still think that............." and then make their case for their point of view.


Then the earnings numbers will be released.  After a horrendous sell off like last week the odds are that the stock will rally because the street will be able to deal with reality--which is often not as bad as the guessing.


I suspect it was a combination of the warning coupled with the current events--sort of a perfect storm situation.


I'm no stock picker by any means, but if I were a gambler I would wager an up day by the close on Monday.  The world has not blown up--its 8 EST on Sunday--and the sun seems destined to come up again tomorrow.  People will still want Scotch Tape and whatever else MMM sells.

Jul 9, 2006 8:42 pm

Again NASD, thanks for your input. Much appreciated.