You May be Speculating in Oil with your Retirement Money

So much for safe, steady as she goes, buy and hold long term investment of your nest egg. Do you know your retirement funds may be contributing to the Oil Price bubble? Your trusted wealth managers may be telling you to have a conservative balance portfolio in retirement whilst they speculate in oil with your money.

“A pension fund is supposed to be investing money in secure, stable investments for the benefit of the people whose money they are investing,” said Dan Lippe, an energy analyst at Houston-based Petral Consulting Inc. Retirement Funds Plowing Cash into Oil

I’m really not sure of the ethics of this. It is supposedly well intentioned and aimed at protecting your nest egg to some degree against inflation and the loss in value of the US dollar. However I am more of the view they were chasing their bonuses on what looks like a sure thing riding the oil trend, just like the housing bubble. They get their bonuses every quarter in real cash. They cannot be trusted.

These are the same people who put your money into sub prime products that may have cost you your house or a good part of its value, lent your shares to speculators so they could short the very stock you owned, and now they are speculating in oil with borrowed money – your retirement money. Don’t let them do it.

Perhaps 60% of today’s oil price is pure speculation” In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them.”

The irony is it may be good for your health. Just think, their irresponsible speculation in oil has sent prices through the roof. You can’t afford to use your car. So you walk to the corner store now and take the bus to work. You have never walked this far in years. Suddenly you are feeling better and healthier than you have in years. Thank you Retirement Fund ;-(

But what happens when we get to the inevitable tipping point associated with any bubble? How exposed is your retirement fund? Who will be the greater fool? You should find out where your nest egg is invested and pull it out of any speculative oil investments now. Demand it of your financial adviser.

Remember Rule #1 is avoid large losses.

The chances of taking a large loss is more and more likely the higher the price of oil goes – if it is a speculative bubble. And if oil is being used as a hedge against inflation then there is a large speculative component built into the price of oil.

The funds will tell you it is a long term strategy. But buying and holding oil contracts for the long term is not what that market is for. The oil market was set up to help put some certainty in the oil market for buyers and sellers of oil who are in the business of oil.

Fund Managers should be investing in well researched companies and buying their stock and holding it for the long term if they espouse a buy and hold philosophy. Buying stock in companies that create products and services should add value over the long term. Buying or selling an oil contract if you are not in oil is not an appropriate use of your money.

But I believe it still goes back to the days of cheap money from the FED and the need to make returns that funds can generate to convince us to invest more of our retirement money into their funds. With so much money and a dropping dollar the surplus money had to be put to work to hedge the vast sums invested in assets of value to protect them. Again maybe it was well intentioned and working in the beginning. But once everyone jumped on-board and did the same then it was a case of chasing the market.

And riding a speculative bubble is never long term. Oil prices are unsustainable When prices go parabolic the end

is near and the fallout will be catastrophic for your retirement funds just as it was during the Dot-Com crash. According to Associated Press “Who are those oil speculators, anyway? Many you” investors lost 8% of their retirement funds then. Remember it is the size of the loss that hurts. You can enlarge the chart by clicking on it or by going to Historical Crude Oil Price Chart.

Here’s what a Hedge Fund Manager said in an article entitled, “Pension funds deny speculation on oil“,

“Michael Masters, managing member of the hedge fund Masters Capital Management, said eliminating excessive speculation could lower oil prices from the current US$138 a barrel to around US$65, below where the commodity was trading a year ago.”

It’s not just Mutual Funds with their fingers in the pie either.

In the last five years, investments in index funds tied to commodities grew to US$260 billion from US$13 billion.

Right now there is a lot of talk about legislation to force speculators to put more money up front to buy a futures contract. That may be an inefficient use of your retirement money but your fund manager may do it because they may have no other easy option to try to fight inflation. More legislation is likely to cause more problems than it solves.

US Pension Funds are fighting to avoid legislation by suggesting it could hurt your retirement fund. They are responsible for putting your funds a risk in the first place and they want to keep doing it. This makes no sense.

“Previously silent on the issue, pension fund managers moved Tuesday to head off an effort to ban them from investing in commodities.” US Pension Funds Warn Lawmakers

After years of low-cost money there is just too much money in the system chasing too few good assets and so it is overflowing into areas it would not normally go, chasing returns or protecting against inflation. Nature will let that surplus money drain away and disappear along with much of your nest egg if you are not careful.

Money flows like water and likes to take the easy course. What needs to be done is to find a way to redirect that money to flow back naturally to where it belongs – in long term high value companies that produce real products and services and real value.

The voices of Investors and Baby Boomers in retirement if heard may well help turn the tide far more effectively than any legislation. So get mad and go and thump the table of your financial adviser and demand they take action on your behalf. They are paid to protect your nest egg. Make them do their job and earn their money.

6 Responses to “You May be Speculating in Oil with your Retirement Money”

  1. […] unknown wrote an interesting post today onHere’s a quick excerptDo you know your retirement funds may be contributing to the Oil Price bubble? Your trusted wealth managers may be telling you to have a conservative balance portfolio in retirement whilst they speculate in oil with your money. … […]

  2. A report from Greenwich Associates in the UK provides the perspective from the other side: the average hedge fund receives 13% of its assets from institutional investors including pension funds, and a further 23% from fund of funds (in which pension funds also invest, perhaps at even greater rates). The numbers from US-based research would probably be different, but anyway this gives the idea that, yes, hedge funds do count on pension/retirement money. Read more here: http://www.ipe.com/news/Hedge_fund_exodus_fails_to_surface_28408.php

  3. admin says:

    Dan,

    Thank you for taking the time to add value to my Blog. I hadn’t realized just how much pension funds used Hedge Funds.

  4. […] admin is on fire! I give the post You May be Speculating in Oil with your Retirement Money two thumbs up! Check it out! […]

  5. […] wrote an earlier post called, “You May be Speculating in Oil with your Retirement Money“, which explained the concerns with retirement funds investing in Oil futures. Then the […]

  6. […] may recall my post, “You May be Speculating in Oil with your Retirement Money” written in June when Oil was in a parabolic rise. Look what happened to Oil. I didn’t […]

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