The Commodities Futures Trading Commission will seriously consider imposing strict position limits on traders placing bets on energy contracts, and that's just fine with hedge fund manager Mike Masters.
The head of Masters Capital Management blew the whistle on oil speculators last year when he testified before Congress regarding the rapid run-up in oil prices as it reached its record high of $145 a barrel. He is scheduled to testify at the CFTC hearings Aug. 5.
Masters, whose long/short equity fund manages approximately $1.06 billion according to data provider IPREO, believes stringent limits on commodities trading would work.
"For about 60 years we had position limits. In the 1990s, they were removed from a lot of commodities. Now, with crude, there are only position accountability limits three days before the contract is up. We need them again. We need to go back to that regulatory regime that worked for 60 years.
"Bottom line, the commodities market really just boils down to inventory. If you want to invest in energy, buy energy companies, exploration partnerships, or alternative energy companies — don't buy the inventory itself," he said.
More on Proposed CFTC Regulations:
- Speculators Were Key in Oil Price Hike: Chilton
To make his case, Masters makes a simple analogy: instead of investors trying to buy up all the tickets to Disneyworld (inventories to be sold by Disney) as an investment, wouldn't it make more sense that investors buy the common stock in Disney Corporation (means of production)?
In preparing for his Congressional testimony, Masters found data he said shows that markets are being primarily driven by capital markets investors versus the designated prime constituency: bona fide hedgers.