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Fine Fudge…

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

On Wednesday, October 18th, the Commodity Futures Trading Commission (CFTC) voted after much delay and debate to impose position limits on 28 commodity futures and equivalent swap contracts. The CFTC’s action and vote was mandated under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. After soliciting public comment earlier in the year (reported to be overwhelmingly in favor of tighter position limits), the CFTC opted to table further action until now. Commodities covered by yesterday’s vote include coffee, corn, cotton, oil and copper among others. The new rules are slated to go into effect in 2012 or 2013.

In light of the controversy swirling around the subject and the contention within the CFTC, we doubt the new rules will be implemented with expedition. Furthermore, we doubt the Commission’s vote will be the decisive action needed to curb the influx of long-only, non-commercial investors in the commodity markets. At best, the CFTC’s actions merely freeze the status quo.

Yes, the vote imposes limits on the number of contracts any one trader can accumulate based on the deliverable supply (for the near term or spot-month contract) or the open interest (the total number of contracts in force for other months). But, there are three reasons, we believe, for skepticism. First, the ruling makes no distinction between commercial (viz., entities engaged in the supply of use of the commodity) and non-commercial (viz., Wall Street banks, pension funds and the like) traders. In our view, the CFTC should have allowed larger ceilings for commercial entities and much tighter limits for financial speculators. As of October 11th, the Commitments of Traders report showed that non-commercial entities (swap dealers and money managers) controlled 56 percent of the open interest in futures contracts related to West Texas Intermediate Crude oil.

Second, if the Commission’s composition changes, its recent decision can be undone. There is a vocal opposition which contends the new limits are a mistake. Their view is there is no conclusive evidence to link the surge in non-commercial buying and the rise in commodity prices. Yes, the evidence is only circumstantial. But criminal defendants have long been convicted on circumstantial evidence alone. During the Great Depression, President Franklin Roosevelt championed any measure, regardless of ideology, which offered any hope of getting the economy moving. Today, we feel any measure which may lower prices, thereby increasing the purchasing power of the average American family, is worth a try.

Finally, the limits recommended are expansive. We worry that in the aggregate the new limits will do little to curb the influence of non-commercial traders on energy and other commodity prices.

The CFTC’s vote is, in our view, in keeping with Washington’s tendency to govern for constituencies instead of for the commonweal. Decisive measures give way before watered down compromises which only fudge the outcome, guaranteeing problems will linger on.


Based on data collected by the Commodity Futures Trading Commission (CFTC) from swap dealers and index traders.

Data collected is based on the notional values and the equivalent numbers of futures contracts in all U.S. markets with more than $0.5 Billion in index investment at the end of any month.

Net positions (long less short contracts) include options on futures contracts on a delta-adjusted basis.

(Source: CFTC, Index Investment Data and Commitments of Traders Report.)

About American Independence Financial Services, LLC

American Independence Financial Services, LLC (“AIFS”) is the investment adviser and administrator for the American Independence Funds and the NestEgg Target Date Funds. The firm is a limited liability company founded in 2004.

Important Disclosures

(c) 2011, American Independence Financial Services (AIFS). All rights reserved. Redistribution and quotation permitted with attribution to the author and source.

The views expressed in this document are based on political, market, economic and other conditions subject to change at any time. Data are acquired from sources believed to be reliable. But no warranties are made to the accuracy, completeness or timeliness of the data and information presented. Opinions expressed are those of the author unless indicated to the contrary. Nothing in this document should be construed or taken as financial or investment advice. Please consult with your financial advisor to discuss how the subject of this research report may impact your unique, individual circumstances.

Certain indices, yields, exchange rates and other market and economic statistics may be quoted or mentioned in this report. You can not invest directly in an index; nor can you obtain many of the other yields or rates quoted. Please bear in mind such indices and other statistics do not include many of the expenses associated with investing in securities including (but not limited to) trading costs, custodial fees and management fees. All index results cited in this document reflect returns including the impact of re-invested dividend or interest payments expressed in US Dollar terms unless noted to the contrary.

Investors should understand and consider these and other risks they may face by investing in the Funds. These risks are discussed more fully in the Funds’ prospectus. Investors are encouraged to read the prospectus.

For more complete information on the American Independence Funds, you can obtain a prospectus containing complete information for the funds by calling 1-866-410-2006, or by visiting Please read the prospectus carefully before investing. You should consider the fund’s investment objectives, risks, charges and expenses carefully before you invest or send money. Information about these and other important subjects is in the Funds’ prospectus.

Income taxes may be due on all or a portion of the interest, dividends or capital gains received or realized through an investment in a mutual fund. Please consult with your tax advisor to discuss how different investments may affect your tax liability.

Shares of the American Independence Funds are distributed by Matrix Capital Group, Inc., which is not affiliated with American Independence Financial Services, LLC.

Not FDIC Insured – May Lose Value – No Bank Guarantee





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