Wall Street hangs its hopes on the natural cycle: Larry Black notes an outbreak of cloudgazing in New York and sees IBM show that it is, after all, a Big Company

WITH ALL the attention that has been focused of late on the complexity of financial derivatives - the ultimate hedging tool, or 'the savings and loan crisis of the 1990s', depending on your point of view - it is curious that Wall Street should suddenly be obsessed with the most basic of speculative gambles, the commodity future.

Perhaps it is the prospect of dollars 2-a-cup coffee, or new revelations about Hillary Rodham Clinton's success in the cattle pits, but traders of all sorts here have been spending an inordinate amount of time watching the price of soybeans, lumber, copper and, of course, pork bellies.

The Hillary margin-trading story aside - it emerged this week that the First Lady at one point controlled two million pounds of beef with her investment of dollars 1,000 - Wall Street has turned to commodities because many believe that they are a reliable forecaster of inflation.

With the Federal Reserve unlikely to move short-term interest rates higher again soon, the markets have fixed on the often-ignored Commodity Research Bureau index of futures prices, which last week hit a three-and-a- half-year high before settling back slightly.

The prospect of tight supplies of raw materials is spooking a market that only the week before seemed satisfied with Alan Greenspan's inflation-fighting resolve - little matter that the price of such basic goods is a far less important factor in inflation than, say, wages, or that the CRB's basket of 21 staples is heavily weighted with grains at the expense of industrial commodities such as oil, metals and lumber.

Last week saw debt traders who are usually preoccupied with leveraged swaps and structured notes glued to the cable television Weather Channel for the latest crop- planting forecasts. They might have been planning Memorial Day barbecues at their Long Island vacation homes, but for the Midwest they were actively rooting for rain.

The agricultural commodities that have been largely responsible for the run-up in prices are both notoriously volatile and largely beyond the influence of monetary policy. Yet the believers in the predictive powers of the market as a whole extend well beyond the usual goldbugs to respected Wall Street economists who cite the CRB's impressive record in the 1970s and 1980s inflation cycles.

Fears of drought in the wheat belt or a South American coffee cartel might be responsible for the 20 per cent rise in the index in the past year, they concede, but there are early indications of price pressures for industrial materials as well. A 10 per cent rise in the CRB typically translates into a one-point gain in the consumer price index in the US a year later, the bureau's research director, Robert Hafer, says.

But, as with the sceptics who note that gold prices have predicted 12 of the last three recessions, there are those who remember the CRB's panicky response to last year's floods in the Midwest and drought in the south of the US.

'Commodity futures are about as reliable a predictor of inflation as weathermen are of sunshine,' one veteran trader at the Chicago Mercantile Exchange said last week.

(Photograph omitted)