Wednesday, June 18, 2008

A Look at the three Bills that could Impact Commodities Markets

Independent Senator Joe Lieberman revealed the drafts of three Bills which could cut back on the investment choices of large players in the commodities markets.

In the first bill, it would not allow pension funds of private or public companies holding over $500 million in assets to invest in energy or agricultural commodities on U.S. futures, foreign or over-the-counter exchanges.

The second Bill would empower the Commodities Futures Trading Commission to limit the share financial investors could hold in the commodity market.

Finally, in what is being called speculatation in the market, the futures regulator could put limits on investments deemed not connected to hedging activities. That would cut back on investments from huge investment banks on commodities swaps.

What I don't like about this is it is really an excuse by politicians for their revealed inability to handle markets. It underscores the weakness and limitations of government, something politicians don't like the electorate to think about.

It's also an attempt to deflect, rather than accept blame for the poor decisions by government officials that have led to high energy and food prices; things like not drilling for oil on American land and coasts, and the terrible decision to subsidize corn-base ethanol, which has resulted in higher food prices across the world.

Tuesday, June 17, 2008

Merrill Lynch Analysts Say Investment in Commodity Markets not Pushing Prices Higher

In an attempt to get the attention off of themselves, American politicians have been spinning the idea that what they call "speculators" in the commodities markets are one of the key causes of the huge increase in prices.

In response, analyst Francisco Blanch at Merrill Lynch (NYSE:MER) not only refutes that, but says the trading causes more stability in the market. Blanch said:

“Only some commodities have experienced significant price appreciation, and we see no evidence linking increases in open interest and trading volumes to price rises. On a positive note, we find evidence that the increases in trading volumes actually help decrease price volatility.”

The real problem is the policies of the government in relationship to supply-and-demand (not allowing much drilling in US), as well as their horrid monetary policies which continue to devastate the market by overprinting their funny money; causing booms and busts.

Another problem cited is the decline in real interest rates which cause prices to increase.

Friday, June 13, 2008

Corn Prices Explode to Record Highs

While food prices dropped last month, the continuing surge of corn prices may spur spur food prices higher, as the ethanol fiasco continues to haunt lawmakers and consumers.

The reason given for the price increase is the weather in the midwest, but that's in reality a secondary cause, as the subsidy's afforded the industry by lawmakers is the underlying reason prices continue to increase.

With so much corn going to dubious ethanol production, it has caused an artificial demand which has caused prices to grow. As a result, every time something happens in the supply chain, it is exasperated because of the ethanol foolishness.

Corn reached a record price of $7.30 a barrel on the CBOT Friday, the sixth day in a row it broke a record.

Producers of meat are especially concerned as animal feed costs will rise, causing them to raise their prices as well.