Calpers to Boost Commodity Investments Through 2010
By Saijel Kishan

Feb. 28 (Bloomberg) — The California Public Employees’ Retirement System, the largest U.S. pension fund, may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records.

Calpers, which has about $240 billion in assets, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said. The Sacramento, California-based fund last year put $450 million into commodities, its first such investment.

The agreement is the fruit of Chief Investment Officer Russell Read’s efforts since joining in 2006 to boost returns by shifting funds into raw materials and markets such as China and India. Oil has soared above $100 a barrel, wheat breached $13 a bushel for the first time, and gold and platinum climbed to the highest ever since Calpers began investing in commodities.

“We plan on ramping up the program by hiring additional staff,” McKinley said by phone yesterday. “We are excited about commodities, which have performed exceptionally well for us.”

The fund’s commodity investments have so far tracked the Standard & Poor’s GSCI index of 24 commodities, which returned 10 percent this year, adding to a 33 percent gain in 2007. In comparison, the Standard & Poor’s 500 Index of stocks has fallen 6 percent in 2008, while U.S. Treasuries returned 2 percent, according to Merrill Lynch & Co. indexes.

20 Years of Growth

“Strength in commodity markets will be something we should see generally over the next 10 to 20 years,” Read, 44, said in an interview in April, a year after he moved to Calpers from Deutsche Asset Management. “The actual importance of the energy and materials sector we believe is going to explode.”

Investors from hedge funds to housewives have been putting their money into commodities such as gold, silver, copper, wheat and energy to help cover losses on stock investments and make up for historically low Treasury yields. Public pension plans in the U.S. hold on average about 81 percent of the funds they need for future retiree benefits, down from 100 percent in 2000, according to a study by Standard & Poor’s.

Money managers plan to boost investments in commodities over the next three years, according to a survey by Barclays Capital published in December. About half of the 150 investors surveyed in New York aimed to expand commodities to more than 10 percent of their total assets, up from less than a fifth of respondents in 2005, Barclays said.

Read’s Strategy

Calpers, under Read’s strategy to change the way it parcels out funds, said in December it planned to switch about 11 percent of its portfolio from stocks and bonds into assets including investments linked to inflation.

The fund, also facing pressure from state and local governments to boost returns, would reduce its fixed-income investments to 19 percent from 26 percent. The yield on the 30- year U.S. Treasury bond last month fell to the lowest since regular sales of the debt began in 1977.

The fund’s commodity program will come under the inflation- linked asset class, McKinley said. Calpers will decide on the proportion of assets invested in commodities “depending on market opportunities,” he added.

Calpers plans to allow its staff to actively manage some of the commodity investments this year, McKinley said

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aps_cctZFFP0

Join Our Newsletter - FREE Report “10 Reasons Gold Has Farther to Run”

U.S. Rep. Ron Paul, R-Texas, got the better of Federal Reserve Chairman Ben Bernanke in an exchange yesterday during a hearing of the House Financial Services Committee.

Paul observed that inflation is an increase in the money supply, and he quoted estimates that the U.S. money supply has been exploding lately — estimates Bernanke did not attempt to contradict. This explosion in the money supply, Paul said, is currency debasement that expropriates savers. He asked Bernanke how it could be justified.

Bernanke replied that the Fed’s statutory mandate is price stability rather than money supply.

Whereupon Paul cited the sharply rising Producer Price Index.

Bernanke answered that he prefers to go by the Consumer Price Index. (Maybe because it is more aggressively manipulated by the government?)

Paul countered that even the CPI has turned up sharply lately.

The best Bernanke could do was to acknowledge that the Fed is concerned about that — concern that seems likely to manifest itself shortly in a strange way, with more reductions by the Fed in official interest rates, pushing them even farther below official inflation and expropriating savers even more to rescue the banks and financial houses that lately defrauded the world with the Fed’s connivance.

Join Our Newsletter - FREE Report “10 Reasons Gold Has Farther to Run”

Problems In Credit Markets Continue:

February 21 - Financial Times : “Credit markets were thrown into fresh turmoil yesterday as the cost of protecting the debt of US and European companies against default surged to all-time highs. The sharp jump, which rivalled the market swing at the height of last summer’s credit shake-out, came as investors unwound highly leveraged positions in complex structured products. The move was in part prompted by fears of further unwinding as investors rushed to exit before conditions worsened. ‘There’s a domino effect taking place,’ said Mehernosh Engineer, credit strategist at BNP Paribas. ‘We are unwinding three years of excesses in the space of three days.’ The cost of insuring the debt of the 125 investment-grade companies in the benchmark iTraxx Europe rose by more than 20% to as high as 136.9 basis points… That compares with about 51bp at the start of the year.”

Join Our Newsletter - FREE Report “10 Reasons Gold Has Farther to Run”

Read the rest of this entry »

By Robert Morley

Elements of “Zimbabwe economics” are sounding eerily familiar.

In Zimbabwe, inflation is measured by the hour, not month-over-month as in America and the rest of the developed world.

Zimbabwe’s few remaining merchants update their price tags four, five, or more times a day—that is, when shipments arrive on time, or haven’t been hijacked. For many people, life is a struggle just to get their paycheck to the store quickly enough so that it doesn’t lose value before it can be spent. Life is even harder for the millions who no longer have jobs at all—destroyed by an economy in meltdown.

A report released by Zimbabwe’s Central Statistical Office indicates that the inflation rate for the month of January, as measured by the All-items Consumer Price Index, stood at a practically incomprehensible 100,580 percent.

As gigantic as that number is, most Zimbabweans don’t bother with the official statistics these days (and independent observers believe the true figures are even higher). For many people all that really matters anymore is the ability to find something to barter for food.

Join Our Newsletter - FREE Report “10 Reasons Gold Has Farther to Run”

Read the rest of this entry »

Millions of Americans could ditch homes
By Patrick Rucker

NEW YORK (Reuters) - Millions of U.S. homeowners who bought homes with sinking value are set to abandon the properties and cut their losses on bad investments, a leading housing market economist said on Tuesday.

“We may face something unprecedented … that is a situation where millions of homeowners are going to walk out of their homes in the next couple of years,” said Nouriel Roubini, professor of economics and international business at New York University’s Stern School of Business and head of Roubini Global Economics.

Somewhere between 10 million and 15 million homeowners might soon find that their homes are worth less than the amount of their loans, Roubini said at the Reuters Housing Summit in New York.

Such borrowers would be caught in a trap of “negative equity,” in which they are paying off loans that no longer represent the true value of their properties.

“When the value of your home is below the value of your mortgage, you have a huge incentive essentially to walk away,” he said.

Join Our Newsletter - FREE Report “10 Reasons Gold Has Farther to Run”

Read the rest of this entry »