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Senate Testimony of Michael W. Masters, hedge-fund manager. Food & energy speculation

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chill_wind Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 06:46 PM
Original message
Senate Testimony of Michael W. Masters, hedge-fund manager. Food & energy speculation
Edited on Thu May-29-08 06:47 PM by chill_wind
May 20: "You have asked the question Are Institutional Investors contributing to food and energy price inflation?
And my unequivocal answer is YES. (...) Institutional Investors are one of, if not the primary, factors affecting commodities
prices today."






Good morning and thank you, Mr. Chairman and Members of the Committee, for the
invitation to speak to you today. This is a topic that I care deeply about, and I
appreciate the chance to share what I have discovered.

I have been successfully managing a long-short equity hedge fund for over 12 years
and I have extensive contacts on Wall Street and within the hedge fund community. Itʼs
important that you know that I am not currently involved in trading the commodities
futures markets. I am not representing any corporate, financial, or lobby organizations. I
am speaking with you today as a concerned citizen whose professional background has
given me insight into a situation that I believe is negatively affecting the U.S. economy.
While some in my profession might be disappointed that I am presenting this testimony
to Congress, I feel that it is the right thing to do.

You have asked the question Are Institutional Investors contributing to food and energy
price inflation? And my unequivocal answer is YES. In this testimony I will explain
that Institutional Investors are one of, if not the primary, factors affecting commodities
prices today. Clearly, there are many factors that contribute to price determination in the
commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor,
and one that presents a problem that can be expediently corrected through legislative
policy action.


Commodities prices have increased more in the aggregate over the last five years than
at any other time in U.S. history.1 We have seen commodity price spikes occur in the
past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today,
unlike previous episodes, supply is ample: there are no lines at the gas pump and there
is plenty of food on the shelves.

If supply is adequate - as has been shown by others who have testified before this
committee2 - and prices are still rising, then demand must be increasing. But how do
you explain a continuing increase in demand when commodity prices have doubled or
tripled in the last 5 years?

What we are experiencing is a demand shock coming from a new category of
participant in the commodities futures markets: Institutional Investors. Specifically,
these are Corporate and Government Pension Funds, Sovereign Wealth Funds,
University Endowments and other Institutional Investors. Collectively, these investors
now account on average for a larger share of outstanding commodities futures contracts
than any other market participant.3

These parties, who I call Index Speculators, allocate a portion of their portfolios to
investments in the commodities futures market, and behave very differently from the
traditional speculators that have always existed in this marketplace. I refer to them as
Index Speculators because of their investing strategy: they distribute their allocation of
dollars across the 25 key commodities futures according to the popular indices the
Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones - AIG
Commodity Index.4

Id like to provide a little background on how this new category of investors came to
exist.

(...)


see full testimony: http://hsgac.senate.gov/public/_files/052008Masters.pdf
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chill_wind Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 09:30 PM
Response to Original message
1. Lots of charts and graphs. Has anyone read this testimony?
"Today, Index Speculators are pouring billions of dollars into the commodities futures
markets, speculating that commodity prices will increase. Chart One shows Assets
allocated to commodity index trading strategies have risen from $13 billion at the end of
2003 to $260 billion as of March 2008,5 and the prices of the 25 commodities that
compose these indices have risen by an average of 183% in those five years!"
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ColbertWatcher Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 09:36 PM
Response to Original message
2. Thank you for posting.
I was thinking of asking what people thought of this push to make everything a commodity.
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chill_wind Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 09:45 PM
Response to Reply #2
3. There should be huge outrage. This amounts to hoarding
"In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of
1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own
stockpile as the United States has added to the Strategic Petroleum Reserve over the
last five years.10"

(...)

"Index Speculators trading strategies amount to virtual hoarding via the commodities
futures markets. Institutional Investors are buying up essential items that exist in limited
quantities for the sole purpose of reaping speculative profits."



"(...)Why is there not outrage over the fact that Americans must pay drastically more to feed
their families, fuel their cars, and heat their homes?"

(...)

"Index Speculators provide no benefit to the futures markets and they inflict a
tremendous cost upon society. Individually, these participants are not acting with
malicious intent; collectively, however, their impact reaches into the wallets of every
American consumer."

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ColbertWatcher Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 09:49 PM
Response to Reply #3
4. If I were you...
...I'd change the subject of your OP before you can't anymore.

Change it to "The real reason food prices are so high" or something.

Otherwise, no one will look at this thread.
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chill_wind Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 09:55 PM
Response to Reply #4
5. Thanks. Unfortunately, I no longer can. I posted it hours ago.
Proof enough of your point :-) I try, but I am terrible at writing attention gathering subject lines.
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ColbertWatcher Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 09:57 PM
Response to Reply #5
6. Took me a while to get it right. n/t
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ColbertWatcher Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 10:15 PM
Response to Original message
7. PLEASE REC THIS THREAD!
It's very important and deserves to be on the "Greatest" page.
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bananas Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 10:24 PM
Response to Reply #7
8. k&r #5, hopefully it gets a lot more...
Edited on Thu May-29-08 10:26 PM by bananas
edit to add cross-link to your other thread: http://www.democraticunderground.com/discuss/duboard.ph...

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crickets Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 11:41 PM
Response to Original message
9. This is obscene. K&R
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AzDar Donating Member (1000+ posts) Send PM | Profile | Ignore Thu May-29-08 11:49 PM
Response to Original message
10. Kick ...
:kick:
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HCE SuiGeneris Donating Member (1000+ posts) Send PM | Profile | Ignore Fri May-30-08 01:19 AM
Response to Original message
11. k n r
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SammyWinstonJack Donating Member (1000+ posts) Send PM | Profile | Ignore Fri May-30-08 08:31 AM
Response to Original message
12. K&R!
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chill_wind Donating Member (1000+ posts) Send PM | Profile | Ignore Fri May-30-08 12:50 PM
Response to Original message
13. Breaking just today-- CFTC announces investigation
US Oil Price Manipulation Investigation Underway- Fox In the Henhouse


http://www.democraticunderground.com/discuss/duboard.ph...
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windoe Donating Member (1000+ posts) Send PM | Profile | Ignore Fri May-30-08 05:09 PM
Response to Original message
14. Pigs hoarding food
while the world starves-essentially.
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chill_wind Donating Member (1000+ posts) Send PM | Profile | Ignore Fri May-30-08 07:08 PM
Response to Original message
15. Somethng could be brewing soon: "Prosecutions Possible"


CFTC Targets Shipping, Storage in Oil Investigation: "Prosecutions Possible."

http://www.democraticunderground.com/discuss/duboard.ph...
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Theres-a Donating Member (1000+ posts) Send PM | Profile | Ignore Fri May-30-08 10:13 PM
Response to Reply #15
16. Good. nt
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