It's amazing to me, as I read more and more stories on our current economic situation, how everything is so tied together.
Now they say that many of our retirement funds are doing well because the people managing them are getting into oil futures. But the risk with that is a crash in that area could leave many in dire straights.
Here's an excerpt...
For decades, futures contracts were mostly traded by commodity producers and the people who used the actual products, such as crude oil, corn and soybeans. Agreeing to a price today for a commodity to be delivered in, say, two months is a way to smooth out price fluctuations for those supplies.
But large investors faced with the threat of inflation have increasingly used them as protection against the falling dollar. That includes pension funds, along with investment banks, mutual funds and private hedge funds.
Research firm Ennis Knupp and Associates says $139 billion had been funneled into energy commodites, primarily crude oil, by the end of March and it estimates more than half of that is from retirement money.
The investments have paid off. The Standard & Poor's GSCI index, which tracks a basket of commodities, is up 19 percent in the past five years, compared with just 9 percent for the S&P 500 stock index.
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The risk is that if the remarkable run in oil and other futures markets reverses course, billions of dollars of retirement benefits could be wiped out.
"A pension fund is supposed to be investing money in secure, stable investments for the benefit of the people whose money they are investing," said Dan Lippe, an energy analyst at Houston-based Petral Consulting Inc.
"When we hit that wall and things start falling," he said, "they will fall very fast, and the pension funds that invested in commodities will see a tremendous loss of value."
