bank run blog

The disorderly unwinding that economists have feared is upon us, and one result is that uncertain investors have been driving up commodities, which are suddenly seen as the only safe haven for large positions. The Associated Press ran an analysis today titled Institutional money drives up commodities :

“Institutional investors such as pension funds, university endowments and sovereign wealth funds have ramped up investing in commodities as a hedge against inflation and to seek out higher returns versus stocks and bonds.”

The institutional dollars have to go somewhere. For the last decade they have flowed into various securitized debt instruments, but now that party is over. The AP piece continues :

“In recent weeks, however, more attention has been drawn to the big money these investors are putting into commodity-index funds. They don’t actually own any of the commodities. Instead, they trade futures contracts, which are agreements that oblige the investor to buy or sell an asset at a predetermined price. Futures are considered a benchmark for prices in the market.

Critics allege that the continual inflow of institutional money is hijacking the market because the indices are permitted to bypass traditional speculative position limits imposed by the Commodity Futures Trading Commission.”

full story

One bubble begets another in an economy where the only product is debt. USA Today looked at market behavior last week, wondering Commodities bubble brews? :

“Commodities are the first growth industry of the 21st century. The prices of energy, basic metals and foodstuffs have soared, and so, some say, has speculation. This year alone, cocoa is up 40%, copper has soared 24%, and corn has risen 33%. And the price charts for some commodities are beginning to look suspiciously like the Nasdaq fever line in 1999, just before the tech-laden stock index crashed in March 2000. And, as the economy continues to work through the more recent crash in home prices, the question inevitably arises: Is there a commodities bubble brewing?”

full story