By Ben Strubel
Recently, a nice man named George H. Rohrs Jr. from Price Asset Management, a firm that specializes only in commodities and managed futures investments, emailed me a copy of the newsletter his firm sent to clients in which he wrote a response to my article on commodity funds. Mr. Rohrs asserted:
I wouldn’t call Ben Strubel, the author of this article “stupid.” I would just call him “ignorant” and “unprofessional” and “biased.” I just believe that he ought to get his facts straight before embarrassing himself by publishing the compendium of misinformation contained in his article.
I wouldn’t call Mr. Rohrs an expert in the usage of quotation marks but I would call him a man with some very strong opinions about me. Let’s look at the points he raises in his article and find out if I am in fact ignorant, unprofessional, and biased. Okay. I’m currently sitting in my office not wearing my shoes, so I’ll cop to the unprofessional part.
By Ben Strubel
This week’s Dumb Investment of the Week is commodity funds. Commodities are physical products such as corn, oil, or sugar. Commodity investments only used to be a way that Wall Street parted institutional investors from their money, but over the past decade banks have been increasingly targeting individual investors either directly or through financial advisors, brokers, and mutual fund companies.
Prior to 2000, commodity markets were strictly regulated. Then, in 2000, the Commodity Futures Modernization Act was passed which, among other things, did away with position limits in commodities markets. While commodity index funds have existed since 1991, it wasn’t until recently that they became popular and could handle large inflows of funds. In 2003, several academics published research showing that commodities did not have strong correlations with other asset classes like stocks, bonds, or real estate. Wall Street, never having met a fee-generating idea it didn’t like, seized on this research and began creating and selling commodity index funds to retail and institutional investors. Over the better part of the next decade, $350B flowed to newly created commodity funds.