Wednesday, May 28, 2008
The post Fun with the Michael Masters report from earlier in the week attracted an interesting comment from one swrichmond when it appeared at Seeking Alpha the other day. This ended up saving me a good deal of time in gathering information in an attempt to ascertain the motivation of someone in making such a presentation to Congress.
Recall that last week Masters claimed institutional investors, also known as "index speculators", are "one of, if not the primary, factors affecting commodities prices today". He went on to suggest they be banned from investing in commodities in order to allow such things as oil to seek a more natural (read lower) price.
The misleading graphic below was provided to help make the case.
In the words of swrichmond (all emphasis mine):
Rising commodity prices indicate lessening of faith in paper assets. Paper assets are what the 40-something investor class has built its existence on. This same investor class has experienced nothing but rising stock markets for their entire adult lives and thinks they have a right to constantly rising stocks. Making money is easy when stocks only go one way, isn't it?Well put sw...
So it is no surprise that the investor class will develop a theory about commodity prices, and send a representative to present that theory to cause them to be regulated. The goal here is to cause money to continue to flow into paper assets. Paper assets that are depreciating in real terms at a shocking pace.
One only need look at Master Capital Management's portfolio:
which includes such oil-gobbling winners as AMR, DAL, USAirways, and UAL to understand his motives.
A money bubble is being blown in an effort to reinflate. The trouble with blowing money bubbles is that you have little real control over where the money goes once you have printed it. Capital controls are needed to force the money to go....into paper assets.
As in any other market, speculators are playing a role in setting prices, but there are many other more important (and less-easily remedied) forces at work here.
As for Masters Capital Management, now that a handy link has been provided, let's have a closer look at what's in the hedge fund.
While never having used TickerSpy, I can't vouch for its accuracy or timelinenss, but it looks legit enough for me to share the following screen shot when directed toward Masters Capital Management as instructed in swrichmond's comment above (note that a few columns such as Last Trade, Today's Change, Volume, etc. have been removed in order to get it to fit in the width below):
If this is indeed Mr. Masters' hedge fund, it's having a pretty tough year and if I were in his shoes, I'd be complaining to Congress too - it's got some big positions in airlines and, as I understand it, airlines don't do so well when energy prices surge.
Weighted as indicated in the Portfolio Comments column, you can calculate a Q1 loss of almost 25 percent paced by monstrous declines in the two large airline holdings - U.S. Airways (NYSE:LCC) and United Airlines (NYSE:UAUA).
U.S. Airways is down 72 percent in 2008 and United has plunged 78 percent.
He still gets his two percent, right? But, not the twenty?
While there is no way of knowing how many of these stocks are still in the fund and what the actual Q1 performance was, you can kind of get a feel for what's going on here.