May was a bad month for U.S. stocks. June started out worse, with the S&P500 on Friday down 9% from where it stood at the beginning of May. That puts us back about where we started the year in January, though still significantly above last fall’s lows.
Author Archives: James_Hamilton
Links for 2012-05-30
Quick links to a few items of interest.
Commodity index funds and oil prices
In my previous post
I described a new research paper with University of Chicago Professor Cynthia Wu on the Effects of Index-Fund Investing on Commodity Futures Prices. Previously I discussed what we found for the prices of agricultural commodities. Here I review our findings about oil prices.
Commodity index funds and agricultural prices
I’ve just completed a new research paper with University of Chicago Professor Cynthia Wu on the Effects of Index-Fund Investing on Commodity Futures Prices. Here was our motivation for writing the paper:
The last decade has seen a phenomenal increased participation by financial investors in commodity futures markets. A typical strategy is to take a long position in a near futures contract, and as the contract nears maturity, sell the position and assume a new long position in the next contract, with the goal being to create an artificial asset that tracks price changes in the underlying commodity. Barclays Capital estimated that exchange traded financial products following such strategies grew from negligible amounts in 2003 to a quarter trillion dollars by 2008 (Irwin and Sanders (2011)). Stoll and Whaley (2010) found that in recent years up to half of the open interest in outstanding agricultural commodity futures contracts was held by institutions characterized by the Commodity Futures Trading Commission (CFTC) as commodity index traders.
Fiscal stimulus
My colleague UCSD Professor Valerie Ramey has an interesting new paper looking at the effects of higher government spending on GDP.
Oil and gasoline prices
Here I comment on some recent developments affecting oil and gasoline prices.
JP Morgan and systemic risk
For some time, financial observers have been discussing the large positions in bond-index derivatives amassed by a trader known as the London Whale, now revealed to be Bruno Iksil working for JP Morgan Chase.
On Thursday we learned that JP Morgan has lost over $2 billion in the space of two weeks as a result of the trades. On Friday the stock price fell by 9.3%, wiping out $14.4 billion of the company’s value.
Yes, the Fed could produce a higher inflation rate
From the responses to my remarks last week on monetary policy, I see that my words were interpreted by some readers differently than I’d intended, for which I apologize. Let me try again.
Should the Fed do more?
Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here’s what I think they’re overlooking.
Sluggish U.S. growth continues
The Bureau of Economic Analysis reported today that U.S. real GDP grew at a 2.2% annual rate during the first quarter, down from the 3.0% growth of 2011:Q4, and below the 2.4-2.9% range that the FOMC indicated yesterday it is anticipating for 2012 as a whole. I see some reasons to agree with the Fed that the rest of the year may be slightly better than the first quarter.