invest in the stock market AND commodities and we all take the hit?? And then there's the "bubble" issue, indicating that the people with pension funds invested in commodities are getting hit like the rest of us but have a vested interest in commodity prices staying high. (It's a real question -- I'm very good at some things....economics aren't among them.)
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/06/AR2008070601833_pf.htmlPension Funds Boosted By Oil
While Stocks Fall, Commodity Bets Are Paying Off
Soaring fuel prices that are burning a hole in the wallets of consumers are not only benefiting oil companies and Middle Eastern producers. They are also lighting up the investment returns of pensions funds, which millions of ordinary Americans are counting on for their retirement.
California's public employees' pension fund, the world's largest, made its first investment of $1.1 billion into oil and other commodities early last year, and since then, Calpers has seen it soar 68 percent. Fairfax County pension managers have enjoyed a 61 percent return from a similar move over the past 12 months, far outpacing any other segment of the fund's portfolio.
.........
Investors, including pension funds and Wall Street speculators, have sharply increased their commodity allocations since 2003, from $13 billion to $260 billion, making financial actors an even larger force on these markets than farmers, airlines, trucking firms and companies that buy and sell the physical goods to run their businesses.
Pension funds are among the biggest of these financial investors, according to industry analysts, but the extent of their involvement has not been tallied.
..........
That changed after the stock market crashed in 2001. Fund managers realized they needed more diversified portfolios that would perform well regardless of whether stocks did. At the same time, new financial products simplified trading by allowing big funds to buy into commodity indexes, which work like mutual funds, that were run by Wall Street firms, mainly Goldman Sachs and Morgan Stanley.
Other investors also began buying commodities, including university endowments, hedge funds and big banks. But their investment strategy has been different than that of pensions funds. Many of these investors use trading techniques to make money when commodity prices both rise and fall, while pension funds mostly try to maximize their return over the long term by betting that oil and other commodities will increase in price well into the future. The approach adopted by pension funds has been a concern for some lawmakers because it pushes up prices by increasing demand for futures contracts.
The increase in commodity prices has been so sharp that some pension managers are worried about a possible crash. Partly for that reason, the Virginia Retirement System has decided to stay away.
............
Whether pension funds and other investors are behind the rise in food and fuel prices has sparked a heated debate on Capitol Hill and pitted powerful interest groups against one another. The airlines and other industry associations say the influx of investment money is creating a bidding war for commodity contracts and contributing to higher gas and food prices, hindering companies that need the goods for their businesses.
http://www.businessweek.com/bwdaily/dnflash/content/may2008/db20080520_524455.htmAre Pension Funds Fueling High Oil?
If you're wondering why driving to work has gotten so expensive, you might want to peruse your pension fund's investments. That's because speculation by institutional investors pouring money into the commodities market may be largely to blame for spiking oil prices, according to testimony on May 20 before the Senate Committee on Homeland Security & Governmental Affairs. Crude oil, a so-called hard asset, is viewed as a buffer against inflation—a foe of longer-term investment returns. At the hearing, "Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?," senators heard from those defending the role of speculators in oil and commodities markets as well as those who argue that excessive speculation is the root of global price surges.
"
are experiencing demand shock from a new category of speculators: institutional investors like corporate and government pension funds, university endowments, and sovereign wealth funds," said Michael Masters, managing member of Masters Capital Management, a Virgin Islands-based hedge fund. "Index speculators are the primary cause of the recent price spikes in commodities."
.......
But in the hearing, Masters distinguished between traditional speculators and what he calls index speculators, or passive investors who enter the commodities markets as a long-term hedge against inflation. Commodities exchanges limit the number of positions an investor can take in the market, but Masters says the Commodity Futures Trading Commission has allowed unlimited speculation in these markets through a loophole. This so-called swaps loophole exempts investment banks like Goldman Sachs (GS) and Merrill Lynch (MER) from reporting requirements and limits on trading positions that are required of other investors. The loophole allows pension funds to enter into a swap agreement with an investment bank, which can then trade unlimited numbers of the contracts in futures markets.
Some experts fault the CFTC, charged with regulating commodities markets, for allowing such loopholes. "Congress has provided the CFTC the power to control this unlimited ; the law is very specific about establishing position limits," says Steve Briese, author of The Commitments of Traders Bible and CommitmentsOfTraders.org, a site that focuses on U.S. futures markets. "The problem is they have abdicated this role." The dramatic surge in energy prices has helped to spark inflation across the economy and, as others at the hearing testified, has cut into profits of most in the supply chain. Briese points to Treasury reports that the top five users of swap agreements are investment banks, four of which dominate swap dealing in commodities and commodities futures: Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), HSBC North America Holdings (HBC), and Wachovia (WB).
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
