George Soros, the billionaire hedge fund manager, will warn later today that the oil price has become a bubble that could trigger a stock market crash.
Oil prices: George Soros warns that speculators could trigger stock market crash
George Soros
Graeme Wearden
guardian.co.uk,
Tuesday June 3 2008
George Soros, the billionaire hedge fund manager, will warn later today that the oil price has become a bubble that could trigger a stock market crash.
The Financial Times reported today that Soros will tell the US Senate commerce committee that oil was pushed to its recent all-time peak of $135 a barrel by a new wave of speculators.
He believes that the doubling in the price over the last year is partly due to investment institutions, such as pension funds, who are pumping money into indexes that track the cost of crude.
According to the FT, Soros will warn that there could be very serious consequences for global stock markets if the institutions suddenly began betting on a fall in the oil price.
He compares it with the stock market crash of 1987, which was partly caused by a sudden rush of money into portfolio insurance – which institutions used to protect themselves against a fall in share prices.
“In both cases, the institutions are piling in on one side of the market and they have sufficient weight to unbalance it. If the trend were reversed and the institutions as a group headed for the exit as they did in 1987 there would be a crash,” said Soros, in remarks prepared for a committee hearing later today.
Institutional investors can use index funds to bet on the future trends of a commodity such as oil, in the same way that such funds are used to track the performance of a stock market index like the FTSE.
Last week, the Senate commerce committee heard that the amount of money pumped into commodity-index investing has soared to $260bn (£132bn) this year, from $13bn in 2003.
Soros himself is no stranger to market speculation, having made a profit of around $1bn in 1992 betting that the UK government would be unable to keep sterling within the European Exchange Rate Mechanism.
http://www.guardian.co.uk/business/2008/jun/03/commodities/print
dprogram.wordpress.com 
All smoke and mirrors 1929 and all that?
You make some good points, but perhaps are unaware that the banks are the only industry which effectively allow them NOT to put money where their mouth is.
Politics aside, Ron Paul has been speaking common sense, along similar lines to your article here. The difference is he discovered the ‘smoke and mirrors’ trick in the 50’s and 60’s – and has been trying to educate the Congress and the People ever since!
Basically a bank takes in $100 dollars of gold, then lends out…$900 to customers and records $1,000 on it’s books – as assets. Yet they still only have the original $100 deposit in the vault!
If that were a warehouse with 100 house bricks, you still have a hundred, regardless of how many promises you make. If you promise things you don’t have, outside of banking, that is called fraud.
From other calculations, oil may hit $170 by year end, which would give plenty of room for the pull back Soros speaks of. Banks are being refused credit from each other and are begging investors to ‘lend THEM’ some more!
Right now there is a problem and the response should not be to dilute an already weak currencies by issuing more notes. The notes should be coming back in – but not at the rate of the 1930’s – which caused the depression.
We do have a bubble at present, but the data isn’t available directly anymore.
Is this summer bubble just a result of inexperienced staff handling the ship?
Back in 1928 (and before that in 1907) a similar thing occurred. Big dive in the banking sector, followed by big buy ups and a seeming rise.
This year is in danger of the same thing happening. Don’t let the Olympics distract you, the price of oil will rise before the year end.
This is despite political veribage from the politicians and quangos that make up the central banks.
Theoretically if Fannie and Freddie do go under, the ‘posession is nine tenths of the law’ rule would apply to around half of all US mortgage holders…
As Northern Rock in the UK needed ‘just’ another £3,000,000,000 as it was posting a loss of £585,000,000 the nubers generally do not add up.
http://the5secrets.com
You may appreciate a post I have up about Soros. It juxtaposes his background with Rupert Murdoch’s empire.