Thursday, October 2, 2008

Commodities: $50 bln in 'long-only funds' flees commods markets. And: Calpers says staying the course on commodities

I am looking forward to CalPERS quarterly results. While the recent ugliness won't have an immediate impact on their ability to meet their promises to retirees, I'm guessing that it will end up being a good thing that they can make up any longer-term shortfall by taxing California residents. This could get serious.

Regarding the long only commodities "investors", look for a hit to Goldman's earnings. As proprietors of the GSCI they have at least half the "roll" business. Assuming 2% slippage (fees, spreads, commissions) on the $50 Bil. just removed from the markets and you have $500 mil. in gravy they won't get to put on their spuds. And that's not counting the swaps biz. Two from Reuters:
Investments betting that commodity futures prices will move higher have drastically diminished over the past two months due to the global credit crisis, according to data released on Monday.

The amount of so-called long-only money has shrunk by as much as $50 billion, with the sharpest drops in agricultural futures and oil markets.

Commodities seemed insulated from the slump in stocks and real estate through the first half of 2008, with oil racing to a historic high of nearly $150 a barrel by mid-July, fueling an inflation run-up in most other raw materials.

But as the dollar rebounded from record lows against the euro and the U.S. banking crisis reached epidemic levels over the last 10 weeks, some of the most bullish investors in energy and agricultural markets began to flee.

"The tidal wave of investment into commodities which occurred in the first quarter has collapsed," CitiGroup said in a research note on Monday. It said that since July, the net long position has collapsed from $58 billion to $8 billion....MORE


Top U.S. pension fund Calpers said on Tuesday it was not making any drastic changes to its commodity investments after recent market upheaval and that returns from the sector largely reflect a commodities index it was invested in.

"Generally, whatever returns we've had would pretty much mirror the S&P GSCI index," Clark McKinley, spokesman for Calpers, or the California Public Employees Retirement System, as it is known in full, said in an e-mail to Reuters.

McKinley said Calpers currently had about $1.3 billion invested in commodity futures that track the S&P GSCI.

The pension fund was estimated to be worth about $240 billion by asset size as of February.

The S&P GSCI's Total Returns Index .SPGSCITR -- adjusted for the cost of rolling futures contracts forward as the front month contract in the commodity market it tracks expires -- was up 7.3 percent year-to-date at 2:45 p.m. (1645 GMT).

If compared to its peak in July, the index is down 27.4 percent, largely reflecting a near 30 percent slump in the price of oil, its main component....MORE