Commodity ETFs – Is the Government Manipulating The Commodity
Markets?
The Dynamic Wealth Report
July 17, 2009
Proof The US Government Manipulates Markets!
Every day I read several newspapers, online blogs, websites, and
magazines… as well as what seems like thousands of e-mails. I’m a
voracious reader and I’m always looking for new ideas.
In the last few days, I stumbled across some really interesting news.
What I learned was nothing short of astounding. Proof the US government
is manipulating markets.
It makes me hot under the collar.
I always assumed the government influenced the markets in some way… I
just didn’t know how blatant it could be. It really makes me mad.
What am I talking about?
I’m talking about the CFTC plans to limit holdings by investors.
That’s right. The government is going to tell investors how much of a
particular commodity they’re allowed to own. Seems downright un-American
don’t you think? Here’s the bigger problem. It’s going to hurt
your
ability to make money in the markets.
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First off, let me say this. I’m a tried and true “laissez-faire” type of
guy. As my high school economics teacher explained so many years ago,
laissez-faire loosely translated means, “Hands Off!” It’s a policy I wish
our politicians would learn to adopt.
I really hate how the kneejerk reaction by government is to regulate.
So, why is the CFTC trying to limit trading on the commodity market?
Because prices went up! Seriously. Oil prices had a spectacular rise and
fall last year (as did a lot of other commodities). Because of that rise
and fall, the government wants to regulate even more.
Now, I’m all for fair markets… but what the government wants to do is
limit your ability to make money. What they want to do is limit trading
in certain commodities by large funds. All it’s going to do is make it
more expensive and add risk for you to trade in the commodity markets.
Here’s why.
One of the easiest ways you can trade the commodity market is through
Exchange Traded Funds (ETFs). The fund goes out and buys a commodity (or
the futures contracts) and holds them. You can then buy a piece of the
ETF. If the value of the commodity goes up… your ETF goes up in value.
If the value of the commodity goes down… well you get the idea.
What’s special about these ETFs?
Well for one, you can buy them in a regular stock brokerage account.
They trade just like stocks. Their expenses are reasonable. And, most
importantly, as an investor you get to participate in the upside of
commodity trading without all the risk and complexity of commodity
futures.
No need to set up new commodity trading accounts. No need to learn a
bunch of new trading lingo. No need to take on extra risk with margin
and leverage.
In other words, commodity ETFs let you trade commodities without risking
your home or retirement funds.
But that all might change.
What the CFTC wants to do is limit how much of a commodity funds can
hold. The very ETFs you trade could be subject to these restrictions.
That means it could become more costly for us to trade the ETFs.
Here’s why.
The ETF markets might dry up and cause spreads to widen. Plans for new
commodity ETFs might be dropped, meaning less competition. The funds
might also begin charging extra fees for compliance. We might even see
price premiums added to the ETFs… meaning new investors would be forced
to pay more than the fund is worth.
But, worst of all, these commodity funds might disappear all together.
You could lose… a great way to diversify your holdings… an effective way
to hedge against inflation… and a simple way to profit in the commodity
markets. All because the government wants to manipulate the markets.
The next time someone suggests more government regulation is the answer,
feel free to send them this article. And politely suggest they look at
all the consequences of excessive government manipulation and
regulation.
• CDC (CHINA) was upgraded by Wedbush Morgan this
week. The continued strength of the Chinese economy will propel this
stock higher.
• IRobot (IRBT) was downgraded to a “Hold” rating by
Kaufman. Earnings are scheduled to be announced next week.
• Think Equity started coverage on Alexion Pharma
(ALXN). Their rating was a solid “Sell”. Earnings will be reported next
week… a bold call if you ask me.
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