Wednesday, August 12, 2009

The Screwing of the Average Investor

Probably one of the best ways for an average to small investor to participate in the ecommodities markets is through exchange traded funds. By using ETF's you can limit your risk and trade with small sums.

So what is the government up to? Changing rules in a manner that will make it difficult for commodity ETF's to operate.

So difficult as a matter of fact that the world's largest ETF backed by natural gas said today that it will stop issuing new shares on concerns regulators will set limits on the number of futures contracts it holds.

It would be "imprudent" to accept new investment and purchase more futures contracts "when we believe that CFTC may shortly mandate new limits that would have the effect of capping our exposure in these areas and forcing us to reduce our current holdings," said Katie Rooney, a spokeswoman for the U.S. Commodity Funds, the Calif.-based fund manager that manages UNG and other energy ETFs, in an email interview with MarketWatch.

Jim Rogers is right. U.S. proposals to place curbs on commodities trading will drive business overseas, particularly to Asia:
It is remarkable because America is shooting itself in the foot again... It’s going to drive the business away and the rest of the world is going to welcome
it with open arms


  1. This isn't an act to screw the consumer. Commodity ETF's (namely, US Natural Gas fund and US Oil fund) hold no commodities, only futures contracts (derivatives) that they roll forward. So you get time decay in the futures contracts, commission charges, and the spread that you have to fight. As a result, these only come slightly close to mirroring the movements in the underlying, not mirroring the movments (as GLD and IAU, two gold ETF's that, in comparrison to the nat gas and oil ETF's, actually own the underlying asset and not just futures contracts that they roll forward).

    In essense, they only people benefitting from USO, etc are the administrators, who get their paycheck one way or the other. Anyone else is play hot potato with a derivative - remember that dirty word?

  2. Oh Great.

    ETFs: Eligible for tax-free ISAs (UK)
    Futures contracts: Not eligible.

    @Anon: That isn't how apostrophes work.