Irony in an Interconnected World

The rage over the past 5 years has been commodities and energy futures. Hundreds of funds were setup to funnel trillions of dollars into these vehicles. For example, the number of commodity hedge funds increased from 36 in 2000 to over 450 this year.

Source: Milken Institute

The result is a commodity boom that is all well known to us. This boom has along with it made many retail and institutional investors a lot of money.

However, higher commodity and energy prices have generated significant global inflation, resulting in higher prices across the retail and commercial sectors (higher food/gas prices, higher manufacturing/shipping costs etc). What is ironic is that we are essentially paying all of our investment returns back in real prices.

We are living in an ultra-interconnected world, where everything can be a market and everything can be traded. Our investment strategies have a direct impact on the real economy. We are not only investors, but also users of the vehicles that we invest.
 

Comments

[Zenfar:]

"Our investment strategies have a direct impact on the real economy." This has always been true. It is the speed that has changed. What I would really like to know is what are the margin requirements and tax consequences for commodities vs. stocks.

2008 Jul 09 09:07 AM

[morgan77:]

For those interested in USO, USL, and the likes, check out this technical analysis on greenfaucet- The author argues that once the Iran missile issues fizzles, the threat to gas transport lines in the middle east will disappear allowing oil to make a much needed correction. Once that happens speculators will get rid of their longs, and this will bring oil down even more- she argues that oil has $10 to go down.
Here's the link:
www.greenfaucet.com/en...

2008 Jul 09 01:18 PM

[Nick Gogerty:]

focusing on the potential cause of price growth from speculation is a specious argument. Not indicating the actual growth on the demand side/ dollar decline for global commodities etc is highly disingenuous. This form of article only serves excite the public to hunt out "speculators" and is not constructive. Please provide more evidence of correlation or causation.

2008 Jul 10 08:37 AM

[notsosmart:]

its n longer business but a big game. vegas is quick & this is a little slower. tradition has been overcome by the speed of communication &a 24 hour trading day.so vegas is 24 hrsa day & so is this game. good luck.

2008 Jul 10 02:54 PM

[Paul Killinger:]

Morgan,

Down ONLY $10 dollars...? Heck, oil's had a DAILY range larger than that recently. Oil industry experts say $75 should be a target price. Maybe they'll be proven right. My own thinking is that number will take SEVERAL YEARS from here. We'll see.

2008 Jul 10 03:01 PM