The reason the market has fallen so much in the last month may not be what you think. Today I spoke with a senior investment strategist for a $1 trillion mutual fund complex. In his view, the market's recent fall has less to do with concerns about inflation and much more to do with hedge fund trading.

Specifically, he thinks that hedge funds -- whose managers Vanity Fair reports are building enormous Greenwich, Conn. spreads -- have been borrowing money to buy commodities such as gold, copper, and oil as well as real estate and emerging markets stocks. They mistakenly assumed that the Fed would continue to act as though inflation was benign.

When Fed Chief Ben Bernanke expressed concern about inflation, the hedge funds' leveraged commodity bets suddenly went sour. The dollar toned up and commodities tumbled -- forcing the hedge funds to cover their leveraged bets by selling their long positions in commodities. Gold has tumbled 19% to $591 an ounce since reaching a 26-year peak in May. The Indian Sensex market index has lost over 25% of its value -- plunging from 12,612 on May 10 to 8,994 on June 13.