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Investors Buying Commodities at Peak

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Anonymous

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Brings up another question-- will we be having massive taxpayer bailouts of a bunch of commodity brokerage and investor firms (or entire exchanges) if/when the commodity bubble breaks and a lot of this money (put up on small margin) just doesn't exist- or as was seen in the SemGroup investments- borrowed money :???: ... It is becoming more and more apparent with the SemGroup deal that neither the exchanges nor the CFTC are monitoring to see if these transactions actually have dollars to back them...

Now I slept thru most my econ class's and several of the related Ag class's- :roll: - but the one thing I remember the instructors told me about speculating and hedging-- if you ain't got the product to deliver- or ain't got the extra money to lose- keep your nose out of it-- and for darn sure don't start using borrowed funds in hopes to heal your wounds...

Sounds like Lehmans are a little fearful that these folks have neither product to work with or possibly the cash to cover the loss's that may come....

Lehman: Investors Buying Commodities at Peak

Friday, August 1, 2008 4:16 PM


This year's explosion in commodity investments suggests investors may be overlooking volatility for performance as they pile into index funds that have amassed almost $300 billion, Lehman Brothers said Friday.


"It is important to recognize the limitations inherent in commodities given their cyclicality and high volatility," the investment bank said in a report.


Lehman said it was not surprised that the weak dollar, unattractive equity markets and higher inflation expectations had all contributed to this year's phenomenal growth in commodity prices and the indices that track them.


"But we also find a potentially alarming degree of past performance-chasing momentum," it said.


Crude oil, gold, copper, soybean, corn and wheat futures have hit record highs this year, leading to unprecedented gains for commodity indices such as the Reuters-Jefferies, the S&P GSCI and the Dow Jones AIG.


The CRB, for instance, recorded its best quarter in 35 years between March and June. But July was also the worst month in 28 years for the index as prices of oil and other key raw materials tumbled from their highs.


In a report issued Friday, Lehman estimated assets under management tied to commodity indices at $297 billion.


That was up $62 billion from the $235 billion figure it gave during a similar estimate in May.


In Friday's report, Lehman said commodity indices had grown by about $98.1 billion in value since January 2006. The $62 billion rise in the last two months represents 63 percent of the two years' growth.


"We recognize that indices present an important financial innovation in opening up a previously obscure asset class to a wider pool of investors, helping macroeconomic risk management," Lehman said in Friday's report.


"However, investors should not be lulled into a false sense of security by the recent outstanding performance of commodities. Furthermore, commodity indices are somewhat peculiar in that they allow investors a long-term view of commodities through short-term rolling instruments," it said.


Commodity indices typically allow investors exposure to markets like oil without having to take delivery of crude barrels. In their simplest form, the indices require investors to roll their positions as contracts come up for delivery.


The massive growth in commodity index money this year, which has coincided with record high gasoline and food prices, have led to calls for legislation against excessive speculative activity in commodity markets. Investor groups on the other side of the debate have resisted such moves.


"Our analysis suggests that (the) reality is considerably more complex and does not align with either extreme of the debate," Lehman said.


"We feel that there is room for further financial innovation in the vehicles available to investors," it said, citing newer commodity indices that limit their impact on near-term prices as one example.
http://moneynews.newsmax.com/headlines/lehman_commodities_call/2008/08/01/118323.html
 
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