Jack Walker

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

Geithner's Financial Reform Is Doomed to Fail

Steven,

This is a well thought out article. Now what is the plan to get it communicated to those who could start a meaningful discussion and perhaps get it implemented?

Jack

Atlas Pipelines: I'm Out of Here

Skip,

This is a thoughtful and well-prepared article. We may well be near the bottom of natural gas prices but the complexity of this company and all of the financial engineering materially increases the risk and certainly increases the time necessary trying to understand the risk.

Jack

Jobless Claims Would Have to Approach 1M to Reach 1982 Level

Mark,

Your adjustment to the unemployment numbers makes good sense. Keep up the good work. We need more balance to the overwhelming negative bias we receive from financial media.

Jack

Can High Options Volume Predict Future Stock Prices?

Dr. Duru,

You have done a lot of work and your results are interesting.

Have you considered adding the relationship between the stock’s historical volatility and the options implied volatility to the analysis?

Jack

The VIX and the 2002-3 Market Bottom

Toro,

This is a well-prepared article showing the relationship between SPX and the VIX. So far, the current downturn looks very much 2002-2003. If it follows the same pattern, it could take awhile yet for the final bottom to be made and retested and we will not see higher highs in the VIX.

With reference to Russell Napier’s book, Anatomy of the Bear, it seems to me the 1975 low at 62 was also a slow long selling exhaustion affair.

Jack

Option Selection for Covered Call Writing

Richard,

Thanks for taking the time to write this article. In this environment it is a good strategy to be used for good quality high dividend paying companies.

Jack

Barron's Calls a Bottom

Eli,

How many times has Barron's called the bottom in the last year?

In the long run equity prices are a function of earnings and there is no confidence in the current earnings projections. Nobody can accurately project earnings in this envoronment.

Jack

When Will the Oil Price Pop?

Jim,

Congratulations on a well prepared fundamental effort to forecast crude oil prices. We wonder if the fundamental approach is just too complicated with multiple unknown and politically influenced variables that preclude forecasting price levels with any confidence.

Until recently, we thought the best source of supply and demand data was generated at the NYMEX in the commodity futures markets. Recently our confidence in the market pricing forecast approach has been shaken by the apparent attempts of large speculators to circumvent margin, position limits and reporting requirements of the CFTC in an effort to obscure their activity. Until we get some additional information about the CFTC investigations that began last summer into OTC and ICE trading of crude oil contracts we remain skeptical about pricing data from the futures markets. If you have any information about these investigations, we would appreciate you sharing it with us.

Jack

Dollar Reaches 4.5 Year High

Mark,

This is a nice chart of the US Dollar Index prepared by the Federal Reserve. Interestingly it is not the same as the ICE listed and traded US Dollar Index Future that traders follow daily. Now at 88.45, the DX (cash) made a high of 92.63 during the week of November 14, 2005 and the previous high was during the week of 92.29 on May 10, 2004, neither of these highs corresponds with the Fed’s high in August of 2004. Since we are watching these old highs as previous resistance levels, do you have any ideas as to how these numbers should be reconciled?

Jack

Four Stocks Going Ex-Dividend Mid-March

Stockerblog,

Nice article - thanks.

Since there are always questions, can you clarify exactly how many days before the ex-dividend day does the stock need to be purchased in order to receive the dividend on the distribution date?

Jack