On Collateralized Commodity Futures
Bill Bernstein has updated his website with his thoughts on commodity futures investments. His view appears to be that with the flow of hot money into commodities-related investments in the past few years, the commodities futures market has moved from the usual backwardation scenario into contango (at least for the case of oil), which is a condition where futures trade above, not below, the expected spot price.
What this means is that the “insurance premium” which collateralized commodity futures (CCF) investors used to earn in the past is now either very small or zero. This does not imply that CCF investments would not provide any return going forward (since the market can move from “small” contango to an even larger contango), but it does suggest the easy money to be made on CCF is already over.
The related Diehards discussion is 53278.
Stumble it!
September 25th, 2006 at 12:05 am
Another Diehards discussion that follows up 53278 is 53367.