Trader Talk
- Stocks Lurking Near New Highs Again
- Risk Trade Is Back On
- This Week's Biggest Story: The Dollar
- Corporate Issuance Continues at Torrid Pace
- The Bernanke Dollar Bounce & Gross Says Forget About Rate Hike
- Colgate Really Sparkles After Hours
- Light Volume Has Traders Complaining
- Gold Shatters Another Record
- Have Retailers Reached Their Limits?
- The Retail Mind Game
TRADER TALK RSS FEED
- U.S. Stocks Fall on Dubai Worries
- Black Friday at Best Buy
- Strategists on Dubai: Avoid 'Rash Moves' Now
- Longer Lines, Fuller Carts This Black Friday
- Dubai Stock Market Fear Has 'Legs': Dennis Gartman
- Obama's Emission Reduction Pledge Paints Future for Autos
- Is Super Bowl Halftime Act Too Old?
- Surprising Options Trades in TiVo Shares
- EA Sports Hopes to Pump Up Sales Through Pop-Up Locations
- Dubai's Debt Woes Signal New Era for Creditors
- US Treasury Wants Banks to Do More to Ease Mortgages
- Fed Audit Would Hurt Economic Prospects: Bernanke
- Next Week: Cash In Now Or Wait For A Santa Rally?
- Dubai Stock Selloff May Bring Buying Opportunity
- Longer Lines, Fuller Carts This Black Friday
- Big US Banks May Be Forced to Raise Capital: Bove
- Bank of America Amends Pay for Senior Executives
- The World's Biggest Debtor Nations
Text Size 
Reporter
Several commodity ETFs and ETNs have announced that they are not issuing new shares, which means the only shares that will exist are the ones that exist now.
As a result, several funds are now trading at a premium to their underlying indexes. How did this happen, and when did ETFs and ETNs become closed end funds?
Blame it on the Commodity Futures Trading Commission (CFTC), which announced they were conducting investigations into speculation in the commodities market.
"Speculators" are anybody who isn't using commodities futures to hedge--this would be anyone who was not an oil company, or actively involved in production of commodities.
That leaves hedge funds, and other investors...including commodity ETFs and ETNs.
As a result, several companies behind commodity ETFs and ETNs have gotten spooked.
Look what has happened to the United States Natural Gas Fund [UNG
Loading...
()
]. This owns the front-month natural gas contract. Since they announced last week that they would not be issuing new shares, even after the SEC gave them approval to do so, the fund has been trading at a premium to the underlying natural gas contract.
This is like a closed end fund now (which only issues a set number of shares, and can trade at premiums or discounts to their underlying value), and adds significant additional trading risk.
Why? Because you're not just buying natural gas anymore, you're buying natural gas PLUS the scarcity value of the natural gas fund.
This is a good example of the Law of Unintended Consequences. We have a problem: We think there are Dark, Mysterious Forces secretly controlling the universe (and the commodities markets), and these must be investigated. But in the process of doing that, perfectly good products get blown out.
The CFTC needs to clear this up. They need to either issue clear rules, or make it clear that ETFs and ETNs are not part of this...investigation.
I will be discussing this with two ETF experts on Closing Bell today at 3 PM ET.
Halting Share Issuance:
- U.S. Natural Gas Fund [UNG
Loading...
()
]
- PowerShares DB Crude Oil Double Long ETN [DXO
Loading...
()
]
- iPath DJ-AIG Natural Gas ETN [GAZ
Loading...
()
]
_____________________________
_____________________________
Questions? Comments?
LATEST FROM TRADER TALK
POPULAR TRADER TALK POSTS
- Stocks Lurking Near New Highs Again
- Risk Trade Is Back On
- This Week's Biggest Story: The Dollar
- Corporate Issuance Continues at Torrid Pace
- The Bernanke Dollar Bounce & Gross Says Forget About Rate Hike
- Colgate Really Sparkles After Hours
- Light Volume Has Traders Complaining
- Gold Shatters Another Record
- Have Retailers Reached Their Limits?
- The Retail Mind Game
Data is a real-time snapshot *Data is delayed at least 15 minutes