As reported at the NY Times, the futures contracts for corn, wheat and soybeans have expired at a price that was higher than that day’s cash spot price, often much higher. Both the exchanges and academics studying the matter are confused - but have theories, of course. Some explain "shocks to the system", such as larger food demand and uncertainty regarding commodity supplies. Others blame new players in the booming commodities markets: hedge funds, pension funds, and index funds. The contracts themselves are also being blamed, causing some to suggest that everything be settled based on a cash index. Ironically, arbitragers have not stepped in, at least not to the point of correcting inefficiencies. Odd indeed.

There is an interesting article at Bloomberg.com on Nassim Taleb, author of Fooled by Randomness and The Black Swan. Highlights include:

"stress tests are inherently risky because they ignore rare but potentially devastating events ...",

"... we're all blind to rare events and routinely fool ourselves into believing we can predict risks and rewards."

"We're not interested in the small frequent payouts. We want the infrequent huge payouts.''

The article was an interesting read, as was Fooled by Randomness. The Black Swan is next on the reading list.

Natural gas, while still seemingly high, is continuing to peak the interest of investors. T. Boone Pickens recently talked about how natural gas is still trading below its normal multiple to oil, which is traditionally 7-8. Given this normal multiple, natural gas should be closer to $14 per MMBtu, instead of under the $10 MMBtu that it has recently traded. Of course, this logic works if you believe oil will stay near $100 per barrel, which does not look like too bad a bet right now.

RealMoney.com is further stressing how one of the largest natural gas reserves in the world in Saudia Arabia is producing dry wells, and companies in the region, such as Total SA, are pulling out. If this gas cannot be acquired, supply will be less than expected.

On the other hand, Chesapeake Energy (CHK) has recently announced new natural gas discoveries. The company is expecting output increases of 21% this year, and 16% next year. The CEO, Aubrey McClendon, is also increasing his position in the company, purchasing another 1.5 million shares recently, raising his stock total to $1.2 billion. Obviously, he believes the story ........ and his company's prospects.

Ticker: CHK

Dennis Gartman on CNBC made the case to decrease wheat positions, increase corn positions, and decrease soybean positions. The belief being that winter wheat (already in the ground) is known, and that any problems with corn, such as delays in getting it into the ground, will cause problems due to the current demand. Current rain is causing some of these delays. Since soybeans can be planted later, supply should be fine. Therefore, a potential spread position is to be long of corn, short of soybeans.

Art Cashin (while on CNBC) talked Friday afternoon (63/28/08) about how for the end of this quarter there may be more window breaking, as opposed to window dressing - i.e., since the hedge funds are more short than long (his observation), they are more likely to short more near the end of the quarter, thereby driving the prices lower, allowing their end of quarter results to look even better. The change in the uptick rule will only increase this effect. We shall see.

The NY Times is reporting that a new law in China could impede the Microsoft deal for Yahoo if things progress beyond August 1st, once a new Chinese anitmonopoly law takes effect. Yahoo's 40% stake in Alibaba.com could cause the problem. Beyond the Microsoft-Yahoo deal, this new law could place China in a position similar to the U.S. and European Union with regard to regulatory oversight. Increased cross-investment will only continue to complicate regulatory matters.

Tickers: MSFT, YHOO

It looks like Google CEO Eric Schmidt's promised reductions in head counts as part of the Google-DoubleClick merger may become a reality ........ on April 1st. Unfortunately, indications are that the date was not chosen in order to play a bad joke, but to push restructuring expenses off until the second quarter. With click levels down, the first quarter is already a little suspect.

Ticker: GOOG

Zimbabwe's inflation tops an "official" level of 24,000%, below the original 150,000% estimate. I am sure that the Zimbabwe central bank is not celebrating that the estimate came in "low".

It looks like former CEO and current Bear Stearns chairman Jimmy Cayne and his wife sold their 5.66 million share stake in Bear (for $10.84 per share). His stake was about 3.9% before JPMorgan offered a new price and got new terms (a 39.5% stake in Bear, reducing the Cayne's position to 2.4%). From the filing it appears to be a block sale. In that case, who now owns the position? Beyond making a new bid look unlikely, does this affect the sale? The previous board had indicated that it intended to vote their shares for the merger. Does JPMorgan need this 2.4%? Did the shares go to JPMorgan? The drama continues ....... and the prices still trades above $10.

Ticker: BSC, JPM