Hedge-Fund Managers Miss Big Commodity Rally

December 28, 2011, 1:16 PM EST By Elizabeth Campbell

(For more commodity columns, click CMMKT.)

Dec. 27 (Bloomberg) -- Hedge funds reduced bets on higher commodity prices to the lowest level since 2009 just as raw materials headed for their biggest weekly rally in two months.

Money managers cut their combined net-long position across 18 U.S. futures and options by 15 percent to 454,512 contracts in the week ended Dec. 20, the lowest since March 2009, data from the Commodity Futures Trading Commission show. The Standard & Poor’s GSCI gauge of 24 commodities climbed 4.5 percent last week, erasing this year’s declines and pushing the index toward its third consecutive annual advance.

While the S&P GSCI is 15 percent below the 32-month high reached in April, prices gained last week on signs the U.S. economy is proving resilient. Durable-goods orders rose in November by the most in four months, and jobless claims unexpectedly fell to the lowest in more than three years. Concern that shortages will emerge in commodities from copper to crude oil spurred Goldman Sachs Group Inc. to stick with a bullish outlook this month even as funds cut their holdings.

“Commodities are in the process of bottoming,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “You’re going to find out that the U.S. economy is going to continue to grow much faster than people thought. You’re going to see people coming back to commodities.”

Commodity Rally

Last week’s gain in the S&P GSCI was the biggest since Oct. 14 and left the gauge up 2.2 percent in 2011. It rose 20 percent in 2010 and 50 percent a year earlier. The MSCI All-Country World Index of equities climbed 3.1 percent last week, paring this year’s decline to 9.3 percent. The U.S. Dollar Index, a measure against six trading partners, dropped 0.4 percent. The yield on 10-year Treasuries climbed 18 basis points, or 0.18 percentage point, to 2.02 percent, Bloomberg Bond Trader prices show.

Twenty of the 24 raw materials tracked by the S&P GSCI rose last week. Gasoline surged 8 percent to $2.6872 a gallon. Wheat capped six consecutive daily advances, the longest winning streak since January. Oil added 6.6 percent, the biggest weekly gain since October. The commodity gauge climbed as much as 1.4 percent today.

Commodities will return 15 percent in the next 12 months, led by industrial metals and energy, because the global economy is likely to avoid another recession, Goldman said in a report Dec. 1. That’s still the bank’s view, Sophie Bullock, a London- based spokeswoman for the bank, said in an e-mail Dec. 15.

Durable Goods

U.S. bookings for equipment meant to last at least three years rose 3.8 percent after no change in the prior month, a period that was previously reported as a contraction, data from the Commerce Department showed on Dec. 23. Sales of new U.S. homes rose in November to a seven-month high, the department said the same day.

The S&P GSCI is still headed for a 0.7 percent monthly decline after Europe’s debt crisis escalated. Funds are net- short, or betting on price declines, in copper, cocoa, soybean meal, wheat, soybean oil and natural gas, CFTC data show. Crude- oil holdings fell 11 percent to the lowest since Oct. 18, and net-long positions in gold dropped 13 percent to the lowest since April 2009.

European Central Bank President Mario Draghi said Dec. 19 that lenders in the euro region will experience “very significant” funding constraints next year and there are “substantial downside risks” to the economy. The Dollar Index rallied 2 percent this quarter as investors sold other assets for the perceived safety of the currency. The gauge declined in six of the past nine years and is 31 percent lower than at the start of that period.

‘Hefty Declines’

“Going into 2012, there’s a very, very high probability that we can see some fairly hefty declines in the commodity markets,” said Stephen Hammers, the Nashville, Tennessee-based chief investment officer at Compass EMP Alternative Strategies Fund, which has about $500 million of assets. “There’s a tremendous amount of uncertainty about what is going to happen around the world in terms of the global economy.”

Pacific Investment Management Co., the world’s largest bond fund, said the U.S. may stagnate next year. Europe may contract and Chinese growth may slow, Saumil H. Parikh, who leads Newport Beach, California-based Pimco’s cyclical economic forums, said in a report posted on its website on Dec. 22.

The economy in China, the biggest consumer of everything from nickel to soybeans, may expand 8.5 percent next year, down from 9.2 percent this year and 10.4 percent in 2010, according to the median of 19 economist estimates compiled by Bloomberg.

$490 Million

Investors pulled $490 million from commodities funds in the week ended Dec. 21, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals outflows totaled $1.59 billion, and non- precious-metal commodities had net inflows of more than $1 billion, said Cameron Brandt, the director of research.

“Commodities, ex-gold, had one of their better weeks,” Brandt said. “We are seeing some more durable faith in the U.S. recovery at the moment.”

Confidence among U.S. consumers climbed more than forecast in December, to a six-month high, according to the Thomson Reuters/University of Michigan sentiment index. The increase to 69.9 from 55.7 in August is the biggest four-month increase since the period ended June 2009.

Builders broke ground in November on more U.S. houses than at any time in the past 19 months, led by a surge in multifamily units, the Commerce Department said Dec. 20.

China Copper Imports

Refined-copper imports by China climbed to the highest since June 2009 last month, the General Administration of Customs said Dec. 21. Global oil demand will rise 1.4 percent next year, with China accounting for more than a 10th of the total, according to the Paris-based International Energy Agency.

A measure of 11 U.S. farm goods showed speculators cut bullish bets in agricultural commodities by 7.9 percent to 202,544 contracts, the lowest since March 17, 2009. Investors trimmed bullish bets on coffee by 48 percent to 2,954 contracts, the lowest since Aug. 9.

“People are focusing too much on the day to day in Europe,” said Michael Cuggino, who helps manage about $15 billion of assets at Permanent Portfolio Funds in San Francisco. “There’s an overall environment that remains favorably biased towards an increase in commodity prices heading into 2012.”

--With assistance from Mark Shenk in New York. Editors: Millie Munshi, Patrick McKiernan

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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Funds Boost Bullish Commodity Bets on Global Growth Prospects

June 05, 2011, 12:16 PM EDT By Yi Tian

June 6 (Bloomberg) -- Funds boosted bets on rising commodity prices to the highest in four weeks, led by copper, amid signs that the global economic recovery will remain resilient and boost demand for raw materials.

Speculators raised their net-long positions in 18 commodities by 7.3 percent to 1.26 million futures and options contracts in the week ended May 31, government data compiled by Bloomberg show. That’s the highest since May 3. Copper holdings more than doubled. A measure of bullish agriculture bets also climbed as adverse global weather curbed crop production.

The Standard & Poor’s GSCI Spot Index rose for a fourth straight week as Chinese metal inventories plunged and droughts lingered in the Asian country and Europe, trimming prospects for wheat and cotton crops. The global recovery “is gaining strength,” the Group of Eight leaders said May 27 after a summit in Deauville, France. In the U.S., consumer sentiment rose to a three-month high in May, a private report showed last month.

“We are seeing a reasonable rate of growth in worldwide economic activity,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco. “The supply-demand associated with that growth, combined with a weaker dollar, probably explains the move into commodities.”

Copper prices have jumped 40 percent in the past year while wheat has surged 75 percent and corn has more than doubled amid increasing demand from China and other emerging economies. Raw materials have also gained as investors boosted holdings as an alternative to the dollar, which has slumped more than 6 percent this year against a six-currency basket.

$130 Million

Investors poured $130 million into commodity funds in the week ended June 1, the second straight increase, according to EPFR Global, a Cambridge, Massachusetts-based researcher. The previous week had inflows of $702.8 million.

Managed-money funds and other large speculators boosted bullish bets on New York copper prices by 4,604 contracts to 7,304. The jump was the biggest since October 2009. Stockpiles of the metal monitored by Shanghai Futures Exchange have plunged 51 percent since mid-March.

“Destocking cannot continue indefinitely, and market participants will have to return to the market at the latest in the fourth quarter, if not for re-stocking then at least for spot purchases,” Bank of America Merrill Lynch said in a report last week.

Agriculture Bets

Speculators raised their net-long positions in 11 U.S. farm goods by 4.6 percent to 756,629 contracts as of May 31, the second straight increase. Holdings of wheat jumped 14 percent, and bets on a cotton rally gained up 12 percent, the most since August.

“It has basically been a year of the wrong weather at the wrong time, starting with the Russian droughts and then most recently excessive rains in the U.S.,” said Nic Johnson, who helps manage about $24 billion in commodities at Pacific Investment Management Co. in Newport Beach, California. Agriculture “prices could move materially higher because of low inventories and if we have below-trend yields of crops like corn.”

--With assistance from Debarati Roy in New York. Editors: Millie Munshi, Patrick McKiernan

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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U.S. Stocks Snap Three-Day Drop as Commodity Producers Advance

May 25, 2011, 1:38 PM EDT By Rita Nazareth

May 25 (Bloomberg) -- U.S. stocks advanced, with benchmark indexes snapping a three-day decline, as commodity shares rallied on expectations for higher raw material prices.

Schlumberger Ltd. and Halliburton Co. gained at least 1.5 percent as oil climbed following a report showing that U.S. distillate fuel supplies dropped to a two-year low. Freeport- McMoRan Copper & Gold Inc. advanced 2.1 percent as copper rose after Deutsche Bank AG said prices are likely to rebound. Fifth Third Bancorp led gains in financial institutions, rising 1.4 percent, as Fitch Ratings said it probably won’t downgrade German banks because of their holdings of Greek debt.

The Standard & Poor’s 500 Index added 0.3 percent to 1,320.37 at 1:13 p.m. in New York, after earlier falling as much as 0.3 percent. The Dow Jones Industrial Average rose 34.40 points, or 0.3 percent, to 12,390.61 today.

“The rally in stocks and commodities reflects the view that the global economic recovery is in place,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc. in Raleigh, North Carolina, which manages $4 billion. “There had been some concern about softness in recent data and that’s why we saw a pullback. Profits and margins should be sustained at these levels. The trend is higher and the rally will be driven by companies most-exposed to economic growth.”

Commodity Shares Slump

The S&P 500 fell 3.5 percent from an almost three-year high on April 29 through yesterday on concern about Europe’s debt crisis and weaker-than-forecast economic data. Indexes of commodity producers led the declines during that period, slumping at least 6.3 percent. Still, the benchmark gauge rose 4.7 percent since the end of 2010 through yesterday on government stimulus measures and higher-than-forecast profits.

Gauges of energy and raw material shares rose at least 1.3 percent today, the two-biggest gains in the S&P 500 within 10 industries. The Thomson Reuters/Jefferies CRB Index of 19 raw materials rallied 1.4 percent. Oil rose above $100 a barrel in New York. Copper gained the most in two months as Deutsche Bank said prices are likely to rebound, following similar comments from Goldman Sachs Group Inc. and JPMorgan Chase & Co.

Schlumberger, the world’s largest oilfield services provider, added 1.5 percent to $84.49. Halliburton rose 3.6 percent to $49.19 after Morgan Stanley raised its recommendation for the world’s second-largest oilfield services provider to “overweight” from “equal-weight.” Freeport, the largest publicly traded copper producer, gained 2.1 percent to $49.87.

‘Manageable’

Financial companies helped pace a rebound in benchmark indexes as Fitch Ratings said German banks have “manageable” risks related to Greek sovereign debt and the Mediterranean country’s economy.

“The worst consequence of any Greek sovereign default for German and other European banks would be a sharp increase in general capital market and creditor risk aversion at a time when many banks are still in rehabilitation mode,” Michael Dawson- Kropf, a Frankfurt-based analyst at Fitch, said in an e-mailed statement today.

Fifth Third Bancorp, Ohio’s largest lender, added 1.4 percent to $12.66, pacing gains in financial shares.

RF Micro Devices Inc. climbed 5.7 percent to $6.08. The U.S. maker of chips and radio systems for mobile phones was added to the focus list at Morgan Keegan.

Take-Two Interactive Software Inc. rose 3.1 percent to $16.59. The producer of the “Grand Theft Auto” video games reported a fourth-quarter loss, excluding some items, that was 55 percent narrower than the average analyst estimate.

Durable Goods

Stock futures extended declines before the start of regular trading as a report showed that orders for durable goods dropped more than forecast in April, reflecting less demand for aircraft and disruptions in supplies of auto parts stemming from the earthquake in Japan.

Bookings for goods meant to last at least three years fell 3.6 percent, the most since October, after a 4.4 percent jump in March, a Commerce Department report showed. Economists projected a 2.5 percent drop in April, according to the median forecast in a Bloomberg News survey. A measure of demand for business equipment declined by the most this year.

Costco Wholesale Corp. lost 1.2 percent to $80.37. The largest U.S. warehouse-club chain reported fiscal third-quarter profit of 73 cents a share, missing the average analyst estimate by 4.8 percent.

AIG Slumps

American International Group Inc. declined 4.9 percent to $28.03. The Treasury sold 200 million shares yesterday at $29 each, compared with the closing price of $29.46 on the New York Stock Exchange. The government, which retains a majority stake, needs to sell shares at an average of about $28.73 to recover a $47.5 billion investment. AIG disposed of 100 million shares, raising $2.9 billion, according to a statement from the company.

AIG, once the world’s largest insurer, is seeking private capital after a government rescue that swelled to $182.3 billion, including Federal Reserve support. The Treasury in 2010 sold the last of its holdings in Citigroup Inc. and reduced its ownership in General Motors Co. to a minority stake. New York- based AIG is the only insurer that hasn’t repaid its bailout.

“Going out and standing on their own again is definitely what they want to do, and they’re beginning that process,” Cliff Gallant, a KBW Inc. analyst who rates AIG shares “underperform,” said in an interview. “The government can’t sell 90 percent in one swoop.”

--Editors: Joanna Ossinger, Michael Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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