Commodity Speculation
The Fed’s mortgage-securities purchases have bolstered demand, and the possibility of profit, for fund managers such as Narula. Hedge funds that handle mortgage securities have a 20 percent gain on average this year, according to data compiled by Bloomberg. The fund run by Narula, founder of New York-based Metacapital Management LP, is beating that at 39 percent through Dec. 14, according to an e-mail obtained by Bloomberg News. Narula declined to comment.
With money gained from Fed securities purchases, investors speculated on the future prices of commodities, helping to drive up food and energy prices for consumers, said John Gnuschke, director of the Sparks Bureau of Business & Economic Research at the University of Memphis in Tennessee.
After rising and falling independently for decades, prices for stocks and commodities rose “in lockstep” from 2008 through 2011, when the central bank conducted its first series of securities purchases, said Ruchir Sharma, head of emerging market equities and global macro at Morgan Stanley Investment Management in New York.
Higher Prices
Twenty-two of the 24 commodities in the S&P GSCI Commodity Spot Index have gained since the recession ended in June 2009, with only natural gas and cocoa lagging. Corn more than doubled in price even before this year’s drought sent values soaring. Heating oil is up 77 percent and wheat 58 percent. That means higher energy and food prices for consumers like Arlene McGuirk.
“Prices are ridiculous,” said McGuirk, a 65-year-old in Sterling, Massachusetts, who, like Sanchez, supplements a fixed income with a diminished annuity. “People who say there’s no inflation never go grocery shopping.”
Inflation has been lower in the 41 months since the recession ended than it was before. The Consumer Price Index climbed 7.6 percent since June 2009, the federal Bureau of Labor Statistics said. That compares with an 11.8 percent rise in the 41 months before the downturn.
‘Excess Money’
Commodity prices are trading above their value according to supply and demand, Sharma said. “The increase is because of excess money,” he said.