Jack Walker

Hefty Gasoline Supplies During Slack Demand Period Open Door to Call Sellers

Jim,

This is a well-prepared article and a good trade idea. What is the current Implied Volatility of the call options you suggest?

Jack

World Series of Crude Oil: Winner Decides Winter Gasoline Prices

Bob,

Some of the major oil companies, such as BP, also have trading operations. How do we know they are not complicit and participating with Goldman and Morgan on the long side regardless of the supply and demand fundamentals?

If so, it makes one wonder what the CFTC and Department of Energy are doing.

Jack

Why I'm Skeptical About Asset Allocation

Richard,

In our view, you are certainly right to point out that commodities are at not suitable assets for long-term investment.

Commodity markets were established for short-term price discovery not for long-term capital investment. Is there any wonder why futures contracts have a limited life span?

We understand the important liquidity function provided by speculators, but using the term “Investor” in the commodity markets is an oxymoron since the short-term commodity price discovery function is incongruous with long- term investing.

When long- term pension fund and endowment assets are allocated to commodity markets it shifts the demand curve upward to the right and if supply is constrained then the new equilibrium price point is higher than would be determined solely by the producers and uses of the commodity. The resulting distorted price signals send the wrong messages to both producers and users as they make enormous long-term capital allocation decisions. Surely, this would improve the efficiency of the capital markets.

Are we shifting the higher price level to society as a whole for the benefit of a smaller group of pension fund beneficiaries?

Perhaps some pension fund trustees should reevaluate their role in the process.

Without the commodity index participation of the pension funds, perhaps we could once again try to match long-term investment objectives with long-term capital requirements based on accurate commodity pricing data.

Will you continue to question the participation of pension funds in commodity indexes?

Jack

Which Two Banks Are Massively Short Silver?

Ed,

This is a very interesting article. Do we know if Silver is being leased and then shorted?

Do we know if they have a net short position? If so, is it a propriety position or are they acting as agents?

If they are the custodian for the long Silver ETF, could there be a potential conflict of interest?

Jack

Natural Gas Is Cheap Compared to Oil

Donald,

An alternative to consider is perhaps crude oil has been bid higher by index speculation and it will decline returning the Crude Oil – Natural Gas ratio to its normal range.

Frontline estimates around 50 VLCCs are being utilized as storage facilities. This seems to be more related to futures market term structure arbitrage and less to producer and user supply and demand fundamentals.

Is it possible crude oil will be the one to correct?

Jack

The Disconnect Between Oil and Natural Gas Prices

Donald,

Has enough thought been given to the possibility that crude oil has been bid higher by long- term investors seeking declining dollar protection using crude oil futures?

Perhaps the real story is the dollar and until the expectation for a continual decline changes the historical oil and natural gas price ratios may not be very relevant.

Jack

Speculators Keep the Market Liquid

Frank,

Should more effort be make to distinguish between speculators and investors in the commodity markets?

We understand the important liquidity function provided by speculators, but using the term “Investor” in the commodity markets is an oxymoron since the short-term commodity price discovery function is incongruous with long- term investing.

Commodity markets were established for short-term price discovery not for long-term capital investment. Is there any wonder why futures contracts have a limited life span?

When long- term pension fund and endowment assets are allocated to commodity markets it shifts the demand curve upward to the right and if supply is constrained then the new equilibrium price point is higher than would be determined solely by the producers and uses of the commodity. The resulting distorted price signals send the wrong messages to both producers and users as they make enormous long-term capital allocation decisions.

Are we shifting the higher price level to society as a whole for the benefit of a smaller group of pension fund beneficiaries?

Perhaps the discussion goes beyond just setting position limits to examining the acceptable role of the market participants.

Should we be more concerned about matching long-term investment objectives with long-term capital requirements based on accurate fundamental data?

Jack

Peak Oil for Dummies

Lionel,

Thanks for this contribution, you must have spent a great deal of time in its preparation.

Jack

The Energy Markets According to Stupak

Brad,

Thanks for keeping us up to date on these important developments.

It sounds like Rep. Stupak has it about right.

As previously expressed we view long term investment in commodities by non commodity participants as price distortion sending the wrong pricing signals to producers and user alike thereby providing incorrect data on which they base long term capital commitments distorting the entire capital allocation process in the industry.

Secondly, it the “bona fide hedge” exemption was eliminated perhaps the swap market would be curtailed thus reducing this activity which could prove to be beneficial for some price stability.

Jack

How to Handle Energy Speculation: Interview with Chris Cook

Lara,

Speculators have a role to play, but a “Commodity Investor” is an oxymoron since commodity price discovery is incongruous with investing.

Commodity markets are for short-term price discovery not for long-term capital investment. Is there any wonder why futures contracts have a limited life span?

How could the trustees of long-term pension assets be hoodwinked by the “middlemen” brokers that their participation was consistent with their fiduciary responsibilities for long-term capital growth? What seemed to be a good asset diversification strategy for one pension fund is a disaster when they all do the same as it distorts the short-term supply and demand relationship sending inappropriate price signals to both commodity producers and users.

Jack

CFTC Belatedly Discovers the Speculative Oil Bubble

Sean,

Your comments about long-term pension fund participation in commodity markets are a step in the right direction.

We suggest more attention should be directed to the fundamental role of commodity markets, since they are not long-term capital markets, they are price discovery markets intended for a completely different function.

Large long-term capital participation of pension funds and trusts raises the price level of commodities beyond what could be expected by intersection of supply and demand by produces and users. The new higher indicated market-clearing price then sends unreliable signals to both produces and consumers alike further distorting long-term capital allocation decisions.

The result is higher commodity costs for society as a whole benefitting the brokers, dealers and Commodity Trading Advisers who convinced pension fund trustees that commodities should be considered another long-term portfolio asset class suitable for portfolio diversification and risk reduction.

Suitability is the operative word. From a fundamental perspective, commodity futures are not suitable for long-term portfolio investment.

Jack

CFTC: The Key to Market Manipulation

Avery,

This is an enlightening expose of market manipulation for the benefit of a few at the cost of society as a whole, well done. It seems as if Goldman’s quarterly profits are being paid, in part, by everybody else through higher commodity prices. This is a financial scandal of epic proportions.

The second part of the problem is to rid the commodities markets from long-term pension fund participation, which seems entirely inappropriate with their fiduciary responsibility of investing for long-term capital growth and income. The commodity markets are not long-term capital markets, they are price discovery markets intended for a completely different role. The large long-term capital participation of pension funds and trusts is another example of increasing commodity costs of society as a whole for the benefit of the brokers, dealers and Commodity Trading Advisers who have convinced pension fund trustees that commodities are just another asset class to be considered for long -term investing. This is a second scandal of epic proportions.

Jack

CalPERS' Inept Investment Strategy

Joel,

With respect to the loss on the Newhall Land, was this investment written down to reflect current market values and they still retain it, or was it sold with no chance for future recovery? There is a difference.

Even in a low interest rate environment, there must be alternatives to private equity and hedge funds that are more prudent for a long-term pension fund. Whatever happened to the “Suitability” standard?

Jack

The ABCs of Oil Manipulation

Chris,

Have you considered writing a book?

Jack

Commodity Investors: Speculators or Hedgers?

Tim,

The term “Commodity Investor” is an oxymoron since commodity price discovery is incongruous with investing.

This goes beyond the well-known comparison of apples and oranges to something more like oranges and basketballs. They have completely different purposes and functions.

Commodity markets are for short-term price discovery not for long-term capital investment. Is there any wonder why futures contracts have a limited life span?

How could the trustees of long-term pension assets be hoodwinked by Commodity Trading Advisers and Commodity Pool Operators that their participation was consistent with their fiduciary responsibilities for long-term capital growth? What seemed to be a good asset diversification strategy for one pension fund is a disaster when they all do the same as it distorts the short-term supply and demand relationship and sends inappropriate price signals to both commodity producers and users.

Jack