The key seems to be the way in which the accumulated long positions were periodically rolled over, but the article doesn't seem to explain how this was done.
capnrefsmmat covered the bursting of the bubble, but the positions were rolled over simply by converting the futures to their equivalent holdings in actual wheat, selling the rights to that wheat for the actual spot price, and using the proceeds to buy more futures for the next term.
This doesn't actually protect the buyer. Rather, the buyer was protected (for a while) by the continuing influx of new capital into commodity indices which led to a continuing rise in prices -- in other words, it was effectively a distributed Ponzi scheme.
I think I understand. The profit is determined by how much the spot price has increased during the term, since the futures are bought for the spot price at the beginning of the term and sold for the spot price at the end. Put that way, this looks much more like all the other bubbles we've read about.
I get the feeling that there's really only one bubble, but it moves from one sector of the economy to the next, leaving destruction in its wake, kind of like Bugs Bunny used to tear up the ground as he burrowed through it.
Given Ponzi schemes tend to end in prosecution,(this is probably a forlorn hope) could we eventually see prosecutions for this sort of behaviour? Or maybe as a next best investors slowly beginning to realise that these odd price spikes keep ending with a few investment banks winning and all else losing?
