Our Arab "friends" were on to something when they claimed hedge funds were making life difficult for them by gambling on oil prices. The CFTC confirms that the vast majority of investors in long futures contracts are not the end users of commodity products. Futures contracts are great for producers who want to hedge against price swings in the stuff they produce. Anyone else who wants in is playing games with things they don't understand.
Hedgies' attraction to commodity gambling is obvious. Greed for yield drives their pursuit of new asset classes to churn. One remaining question is whether or not the Fed's quantitative easing really is driving hedge funds to go long commodities, the results of which turn up in food price inflation around the world. We'd have to somehow link incentives for banks to keep their excess capital on deposit with the Fed to increased lending to hedgies. With those excess deposits unavailable for things like mortgage loans, are banks then forced to turn to their reliable money maker - margin to hedge funds?
This also begs a question of what regulators plan to do with their newfound knowledge of this high-stakes gambling. My bet is that they'll do nothing but talk. CFTC auditors all want to work on Wall Street too, just like their SEC cousins, so excessive zeal in cracking down on speculators won't help their careers. Nothing will change.
Hedgies' attraction to commodity gambling is obvious. Greed for yield drives their pursuit of new asset classes to churn. One remaining question is whether or not the Fed's quantitative easing really is driving hedge funds to go long commodities, the results of which turn up in food price inflation around the world. We'd have to somehow link incentives for banks to keep their excess capital on deposit with the Fed to increased lending to hedgies. With those excess deposits unavailable for things like mortgage loans, are banks then forced to turn to their reliable money maker - margin to hedge funds?
This also begs a question of what regulators plan to do with their newfound knowledge of this high-stakes gambling. My bet is that they'll do nothing but talk. CFTC auditors all want to work on Wall Street too, just like their SEC cousins, so excessive zeal in cracking down on speculators won't help their careers. Nothing will change.
