A looming crackdown in the commodity futures markets is arousing investor interest in the real thing.
Facing a limit on holdings in paper futures contracts, bankers say they have received inquiries from pension funds and other big investors about the practicality of warehousing industrial metals or chartering supertankers.
The inquiries raise thorny issues for the US Commodity Futures Trading Commission as it devises constraints on holdings of energy futures after last year’s surge in oil prices. Gary Gensler, chairman, has said he wants position limits to be consistently applied across commodity markets.
Critics say investors could respond by bailing out of futures and hoarding actual commodities, an ugly prospect in the event of a global shortage. Neither the CFTC nor the UK Financial Services Authority has jurisdiction over spot commodity markets..
So it appears that with the adoption of position limits, the thin veneer covering the practice of commodity hoarding will be stripped away. When Mike Masters and I wrote the reports "The Accidental Hunt Brothers", we were criticized by people who said that it was unfair to compare pension funds and hedge funds with the famous Silver Hoarders the Hunt Brothers. These critics argued that commodities were a valid investment because they had a yield (the “roll yield”) that could be earned in the futures markets. Now we see that these funds don’t care about the fictitious “roll yield”, they just want to extort money by hoarding commodities and driving up the price. They want to take a page from the Hunt Brothers’ playbook and gouge everyone on the planet who consumes gasoline or food.
There is no investment rationale for buying and hoarding physical commodities. Physical commodities, like food and energy, are inventories! They are not the means of production. They pay no interest, dividends, rents or cash flows. They cost you money to store and unlike gold they have no history as an alternative currency.
If you like Disney (NYSE:DIS), buy the stock or the bonds, don’t buy all the tickets at the theme park. That makes no sense unless you are planning to scalp them to people for more than you paid for them.