Lawmakers Targeting Commodity Trading Rules

Posted by Patrick O'Connor on 5/20/08 11:27 am

What happens when commodity prices hit all-time highs during a presidential election year?  We get more political grandstanding, more regulation, and probably no price relief.

Today Senator Claire McCaskill (D-MO) told the Commodity Futures Trading Commission’s Chief Economist at a hearing in Washington that Americans “are about to pick up pitchforks” because of soaring food and energy costs.  Ms. McCaskill suggested that Congress needs to consider tighter commodities regulation.  Read More

More regulation is not going to solve the global supply and demand issues that are largely responsible for today’s commodity inflation.

How about offering more commodity shorting instruments to the public to counterbalance the predominantly available long-only choices, increasing incentives to citizens and companies that conserve energy, and coming up with some creative solutions that address the negative impacts ethanol mandates have put upon food prices?

More regulation is not a cure-all, Washington.

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Are Investment Instruments Creating a Commodity Crisis?

Posted by Patrick O'Connor on 5/13/08 2:49 pm

During the past few years there has been an explosion of new investment instruments that have allowed investors to participate in the commodity markets unlike ever before.  This new source of buying pressure on the long side (about $250 billion) is causing most of the commodity inflation we’re experiencing today, according to the article “The Looming Commodity Crisis” by Jeff Korzenik at MarketWatch.

Here are some quotes from the article:

“The problem is that the investment capital is too large relative to the size of the underlying commodity markets.”

“A recent move by pension giant Calpers to commit to raise their commodity exposure to $7 billion (from less than $400 million) underscores this growing trend.  All this money is directed to roughly two dozen futures contracts.”

Mr. Korzenik suggests that regulatory intervention is needed to fix the imbalance.  I respectfully disagree.  Instead, I think there should be more shorting instruments made available to put downward pressure on many of these commodities.  That’s a solution that would limit much of the one-sided investing that’s going on.

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Futures Trading in Food Staples and Energy Under Threat

Posted by Tim Hope on 5/9/08 9:41 am

It is widely acknowledged that the global financial community is increasingly interconnected.  A troubling trend in the current environment is emerging in the form of bans, or proposed restrictions, on futures trading in some food and energy contracts.  The global financial marketplace depends on the reliable clearing of all manner of standardized futures contracts.  The imposition of government restrictions in the interest of economic nationalism and domestic political appeasement holds the potential for unpleasant, unintended consequences.

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