Are Market Distortions Driving High Prices?
Futures; Chicago › Vol. 37 Nbr. 9, August 2008
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Summary
Indeed, every nation on earth seems to be responding to a different aspect of the global commodities bull market. In the US, the focus is on oil, while in the developing world, it's on food. And the culprits vary as well, For some, its speculation itself; for others, it's the new-fangled long-only index funds; and for still others, it's misguided government policy. Somewhere in there, you find references to supply and demand and the weak dollar. Trillions of investment dollars are looking for a home, and one place they've found it is with so-called "index speculators," who follow a simple strategy. Rather than trying to pick and choose and time their trades and play both sides of the market like commodity trading advisors (CTAs), they make a passive long-only investment in a basket of commodities, in the belief that it will add overall performance and reduce risk.
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Are Market Distortions Driving High Prices?
An early June edition of the German newsweekly Der Spiegel said it all:
"Angriff auf den Wohlstand - Attack on our Wealth and Well-Being," and below that: "How speculators are making life ever more expensive."Illustrating the story: a two-page image of the CME Group's trading floor, and the following explainer:"After high-tech shares and real estate debt, the hoards of speculators have discovered the commodities market. Their billions have pushed prices to astronomical levels, with grave consequences for the lives of men and the global economy."The sentiment was echoed by India's ruling socialist government, which promptly banned four more futures contracts in June, bringing to eight the number of products that can n...See the full content of this document
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