From Vic Lespinasse at grainanalyst.com:
"Calpers, the largest pension fund in the US, has said they are going to broaden their approach to commodities investing. Up until now they have followed the index fund long only model, especially the SP GSCI (S+P Goldman Sachs Commodity Index), which is having a losing year. Calpers said they will hire additional commodity advisors and consider investing in commodities from both the long and short side, following trends in both directions rather than only the long side."
This is significant because if other large funds follow suit, it will help to prevent commodity bubbles like what we saw earlier this year. If Calpers and others take both long and short positions in commodities, then there will be market forces of equal weight that will influence prices both higher and lower. Large pools of liquidity are needed in the futures markets to provide tight spreads with constant price discovery. They are a benefit to all market participants. It will also remove much of the motivation that Congress has to impose new and potentially onerous regulations on the futures markets. This development will help to keep the markets free, open, and most importantly, liquid!
Since the commodity boom earlier this year, exchange traded funds that short the commodity markets have also blossomed, and they have probably also been a moderating influence on the commodity markets. These are helpful developments that help all market participants and are a free market response to previous market inequities. The futures markets have shown themselves to be self-repairing! This is a typical adjustment that occurs naturally in free markets and millions of market participants, all acting independently and in their own self interest, take actions to fill the gaps of prevoius market inequities. As market participants see ways to profit from market gaps, they quickly take actions to fill those gaps, and the inequities disappear.
