Just what is Soros getting at?
Good lord, haven't we already had enough preening and posturing by clueless lawmakers over the alleged "manipulation" of the oil markets?
But we're not done yet. The Senate Commerce Committee hears today from none other than George Soros, who, according to the Financial Times, will "tell US lawmakers that 'a bubble in the making' is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors."
Not that there aren't fundamental factors at work in the commodity boom, Soros believes, but the boom is being transformed into a bubble as institutional investors pile into commodity index funds. According to his prepared remarks, “When the idea was first promoted, there was a rationale for it … But the field got crowded and that profit opportunity disappeared.”
“Nevertheless, the asset class continues to attract additional investment just because it has turned out to be more profitable than other asset classes. It is a classic case of a misconception that is liable to be self-reinforcing in both directions.”
As I've pointed out before, a primary reason institutional investors are piling into these indices is that they're shelter from a falling dollar. As fiat paper is inflated into infinity, hedge funds and pension funds seek shelter in real, tanigble stuff.
I'm sure Soros knows this. Whether he'll actually address this aspect of it today is another matter. Obviously, with such famous trades as his bet against the British pound in 1992, Soros knows a thing or two about falling currencies and how to make money off it. So I'm not really sure what he'll be getting at today with his testimony.
And here's something even more puzzling: "Mr Soros will say a crash in the oil market 'is not imminent'. But he says it is desirable to discourage commodity index investing – or the 'elephant in the room' in the futures market – though not with more regulation."
If more regulation is not the solution — and surely it's not — what on earth is he doing testifying before a committee that's looking for scapegoats and excuses for more regulation?
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Soros is there because this Congress thrives on half truths. There is an element of truth to what Soros says but Congress is looking for any kind of demon to avert recognition of the fact that our era of cheap abundant petrol is over and we’re patently unequipped to deal with it in the time frame that Congress is used to dealing in. Congress wishes to blame it on “evil speculators” and Soros’s tstimony helps steer the conversation in that simplistic direction….despite what will be a fuller essay by Soros.
Comment on June 3, 2008 @ 11:43 am
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Pingback on June 3, 2008 @ 12:58 pm
The real problem is unregulated speculation in the OTC markets, which are made by the investment banks and hedge funds. These “dark liquidity” pools, in my mind can explain much of the speculation. Then of course when the feds cut rates off at the knees, this also has played a significant part in the run-up.
Or maybe, instutional investors are wise to the gov’t inflation hoax, and have sought safety in the most liquid commodity on the planet.
Comment on June 3, 2008 @ 1:09 pm
Dear Kevin Kerr,
You underestimate denial, especially the american kind.
Comment on June 4, 2008 @ 1:48 am
Well, as I understand it, the same amount of gold will buy just about the same amount of oil today as it would in 2000. I think I also read that the increase in the no longer published M3 numbers and in the increase in the price of oil is a pretty much lockstep relationship.
…and if printing money is such an innocuous thing in terms of the overall effect on the economy then why is it that counterfeit has such a scorched earth response from those in law enforcement? If it is okay for the Fed, and was okay for the Shah to get a set of plates to print his own American dollars, then why not just hand out plates for people to print money to pay their bills with?
Comment on June 12, 2008 @ 12:09 pm