Don't Let Me Down

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The presence and influence of commodity speculators in these markets that the G-8 has alluded to needs to further confirmation than Christine Harper's report on Bloomberg this morning: "

" Goldman [Sachs] and Morgan Stanley are expected by analysts to report the best second-quarter earnings of the world's biggest securities firms this week, having limited their losses from the collapsing credit market."

The swing factor for such a performance? You guessed it:

" They also lead Wall Street in commodities trading, where crude oil futures doubled in the past year and the price of products from gold to corn soared to record highs."

Commodity trading may account for perhaps more than 7 percent of the revenue at the two firms, although they are not reported separately from other income. The two may have earned more than $5 billion in commodity plays last year. And that, is before these markets really melted up.

`` There's just a lot of money chasing these markets,'' said Peter Fusaro, chairman of New York-based Global Change Associates, which advises hedge funds on energy investments. The number of energy-related hedge funds his company lists has more than tripled to 634 in less than four years."

These wads of cash at play in relatively small niches not only has the G-8 worried about the inflationary effects of such activities, but quite a few market watchers and investment gurus as well. Their take? Let's just say that it involves the frequent use of the word "bubble."

``We are facing a very dangerous situation caused by these tremendously increasing prices for commodities, food and oil,'' German Finance Minister Peer Steinbrueck told a meeting of executives and government officials in Russia this month. While supply shortages and rising demand from emerging markets such as China and India account for much of the price gains, money managers such as Michael Masters at Atlanta-based hedge fund Masters Capital Management LLC say financial speculators and a shift of pension fund money to commodities are also responsible.

Billionaire investor George Soros has said commodity prices may be turning into an unsustainable ``bubble.'' Crude oil rose 697 percent since trading at $17.45 a barrel on the New York Mercantile Exchange in November 2001. That surpasses the 640 percent gain in the Nasdaq Composite Index before a reversal in technology stocks in March 2000 triggered a 78 percent decline."

Does this mean that everyone getting into the game knows the markets and knows what to do to navigate the treacherous waters of the commodities' complex? Hmmm..