If anything, the recent bout of volatility in commodities is exposing some weaknesses in the system, like when you have a large hedger who has a mark-to-market loss on a big position and doesn’t have the cash available to meet a margin call. For the most part, these futures-based commodity ETFs are too small to have much of an influence on an underlying commodity. WEAT has less than $500 million in assets.
Commodity markets don’t have a lot of dumb money in them, mostly because of the barriers to entry of opening a futures account. But imagine if they did? Imagine another GameStop Corp. in something we use for food or fuel. That might get the SEC to take notice.
Jared Dillian is the editor and publisher of The Daily Dirtnap, investment strategist at Mauldin Economics and the author of Street Freak and All the Evil of This World. He may have a stake in the areas he writes about.