Wednesday, April 18, 2012

Senator Cantwell (D-WA) Goes After CalPERS, Other Public Employee Pension Plans

She probably didn't mean it that way but the fact is the public-employee pension funds are the largest long-only index investors, aided and abetted by their friendly neighborhood Goldman Sachs salesman.
From the Senator's official website:
...“I definitely believe that we should get these asset class investors out of this market,” Cantwell said during today’s hearing to Dr. Daniel Yergin, Chairman of IHS Cambridge Energy Research Associates. Click here to watch a video of Cantwell’s remarks at today’s hearing. “Saying that we are going to allow a bunch of investors to treat the commodities market like they want to treat the rest of Wall Street from a securities and investment perspective I think is the wrong idea for commodities, something particularly as vital as gasoline.”

According to Commodity Futures Trading Commission (CFTC) data, assets allocated to commodity index funds have grown from $10 billion to more than $300 billion since 2003. At the same time, the prices for commodities that make up these indices have risen by an average of over 200 percent. In 2008, from January through May when oil prices increased $33 per barrel, commodity index funds grew by over $60 billion. From July through September 2008, investors pulled out $39 billion from commodity index funds, and oil dropped $29 per barrel.

As of last month, these funds held positions in NYMEX crude oil contracts equivalent to 233.9 million barrels of oil, about the same amount of real oil supply that Iran produces. Given that a Goldman Sachs analysis found that each million barrels of speculation in the oil futures market adds about 10 cents to the price of a barrel of oil, speculation by non-commercial users is estimated to be contributing around $23 a barrel to the current price of oil, which translates to a tax of about 56 cents a gallon at the pump.

During her questioning, Cantwell referred to a chart presented during today’s hearing by Mr. Frank Verrastro, Senior Vice President and Director of the Energy and National Security Program Center for Strategic and International Studies. Click here and scroll down to page two to view the chart, titled, “Figure 2: Commodity Investment in Oil.”The chart shows how institutional investors have discovered commodity index funds as a new investment opportunity and have flocked en masse to commodity futures markets since 2000. Today, with oil price volatility and increased prices as the “new-normal,” non-commercial speculators dominate the oil futures market by as much as 85 percent to 15 percent, and commodity index funds account for as much as half of today’s speculative volume....
When she says "institutional investors" she's talking about CalPERS.
The Senator may want to fire a staffer or two.