• 4 minutes What If Canada Had Wind and Not Oilsands?
  • 8 minutes EU Confirms Trade Retaliation Measures vs. U.S. To Take Effect on June 22
  • 17 minutes Could oil demand collapse rapidly? Yup, sure could.
  • 15 hours Tariffs to derail $83.7 Billion Chinese Investment in West Virginia
  • 24 mins Could oil demand collapse rapidly? Yup, sure could.
  • 6 hours Kaplan Says Rising Oil Prices Won't Hurt US Economy
  • 1 hour U.S. Withdraws From U.N. Human Rights Council
  • 15 hours EU Confirms Trade Retaliation Measures vs. U.S. To Take Effect on June 22
  • 43 mins Gazprom Exports to EU Hit Record
  • 11 hours "The Gasoline Car Is a Car With a Future"
  • 8 hours Saudi Arabia turns to solar
  • 5 hours China’s Plastic Waste Ban Will Leave 111 Million Tons of Trash With Nowhere To Go
  • 19 hours North Korea, China Discuss 'True Peace', Denuclearization
  • 1 hour OPEC Meeting Could End Without Decision - Irony Note Added from OPEC Children's Book
  • 9 hours Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 9 hours What If Canada Had Wind and Not Oilsands?
  • 19 hours WE Solutions plans to print cars
  • 12 hours EVs Could Help Coal Demand
  • 1 day Hey Oil Bulls - How Long Till Increasing Oil Prices and Strengthening Dollar Start Killing Demand in Developing Countries?
Alt Text

World Bank To Cut Off Oil & Gas Funding

In accordance with the Paris…

Alt Text

Goldman’s Commodity Unit Sees Worst Q1 In A Decade

Investment bank Goldman Sachs saw…

Alt Text

Clean Energy Stocks Outperform Oil And Gas

Green energy stocks saw tremendous…

Mad Hedge Fund Trader

Mad Hedge Fund Trader

John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

More Info

Trending Discussions

Raising the Red Flags on Commodity ETF’s

The July 26-August 1, 2010 print edition of  Business Week magazine put out a brilliant piece entitled “Amber Waves of Pain”  detailing how retail investors are getting fleeced when playing the agricultural and commodities ETF’s.

The unwary are getting shredded by the contango, whereby far month futures contracts are trading at enormous premiums to the front month. An entire sub industry of hedge funds has arisen to take advantage of this spread, at the expense of the ETF investor.

Commodity ETF’s tend to own front month futures with huge premiums which quickly disappear, leading to a large underperformance relative to the underlying.

I have been highlighting these risk for the past year, and have done my utmost to steer readers away from the worst offenders.

The oil ETF (USO), has been similarly victimized, with Morgan Stanley now chartering tankers to take delivery of crude than Chevron.

The problem persists in the agricultural commodities of corn (CORN), wheat (WEAT), and soybeans (SOYB), although to a much lesser extent.

Hedge funds in particular game the published “roll dates” when ETF’s shift positions from one month to the next. The only way to avoid this haircut is to trade short term and avoid the roll, deal directly in the futures, or only trade the physical commodity with an expectation to take delivery.

I have several friends who warehouse copper, and a London hedge fund recently accepted a huge quantity of cocoa.

Business Week, which was taken over by Bloomberg only a few months ago, is infamous in the investment world as the publication that ran its notorious “Death of Equities” cover in 1982. That was right at the absolute bottom of a two decade bear market, when the Dow was trading at the 600 handle. But they do raise some appropriate red flags here.

Courtesy: Mad Hedge Fund Trader




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News