Pension funds are outstanding when it comes to losing money. Tired of the old ways of just putting money into stocks and bonds, they now invest in private equity, venture capital, derivatives, and commodities futures. Perhaps they have forgotten that they invest on behalf of old people who need that money.
Recently the managers of cash for the retired and future retired have put money into mortgage-backed paper and auction-rate securities. No risk is too good for them.
Now, it appears that the funds have loaded up on bets that commodities and oil will move up. With these prices finding tops, at least short term, it is fair to ask how bad things could get if the bet on something going up ends up going down.
According to Reuters, "Pension funds and other investors who rushed into oil through commodity indexes this year chasing big returns as other asset classes tanked could face steep losses if prices fall from record highs."
All of that money rushing in almost certainly helped create a bubble in commodities prices. When the cash begins to rush out again the crash may be remarkably brutal.
Douglas A. McIntyre
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