Suzan Mazur: Pension Funds & The Price Of Oil
Pension Funds & The Price Of Oil
By Suzan Mazur
Opec's acting Secretary General Adnan Shihab-Eldin has called the high price of oil "unjustified." Former Opec master Zaki Yamani has re-emerged to say that $50-a-barrel oil is "unsustainable," and he's predicted another cycle like the late '70s/early '80s (which led to a price collapse), because consumer spending and the US trade balance are being affected. Meanwhile, Qatar's oil minister Abdullah Al-Attiyah insists the price of oil is out of Opec's control.
So what's keeping the price of oil up at $50+ a barrel? The usual suspects are the unregulated hedge funds and derivatives, i.e., swaps, forwards, options, futures.
Economist Catherine Austin Fitts, founder of Solari, Inc. and a former Assistant Secretary of Housing (Bush I), has described derivatives as having, "exploded, far beyond the ability of most public and private leaders to understand or explain."
In the the past year, hedge fund favorites called "spiders" rose 148% in the energy sector of the Standard & Poor's 500 index. [Click Here Miss Muffet Beware: The SPDRs Are Even Bigger This Year]
Now we're seeing hedge fund divisions popping up at leading private equity firms like Carlyle Group, Blackstone and Bain Capital, where pension funds are heavily invested. But what is not discussed is how much America's pension funds - with trillions of dollars of total investments - influence the price of oil.
On the surface it looks like pension funds are just beginning to get into oil stocks - as "late oil peaker" Michael Lynch has told me. Lynch is Director of Global Petroleum at Strategic Energy and Economic Research, an oil and gas modeler, and does work in the short sell market. So it would seem he would know. (Click here: Scoop: Suzan Mazur: Peak Oil - Debate Or Vendetta?)
Only bits and pieces of the pension funds oil investment picture are obvious. The biggest headline in the past year has been the case of investors in public funds from eight states -- Arkansas, Kansas, Louisiana, Michigan (Detroit), New Mexico, Ohio, Oklahoma, Pennsylvania -- suing Shell for misrepresenting its oil and gas reserves numbers from December 1999 to January 2004. Overstating the numbers led to artificially inflated stock prices and the loss of millions of dollars for pension fund investors. Shell eventually downgraded its reserves numbers by 4.4 bb and executive heads rolled there.
Congresswoman Barbara Lee (D-Oakland, CA) has been pressing Calpers, America' s largest pension fund, to divest from companies in its portfolio doing business in war-torn "oil-rich Sudan." And Pennsylvania's Public School Employees Retirement System has been under scrutiny for investments in Total Fina and PetroChina, both active in Sudan. PetroChina is a subsidiary of China National Petroleum, the world's fifth largest oil company.
What has been overlooked is the pension fund investment in the S&P 500, 20% of which is energy-related, with the major oil companies represented such as: Conoco Phillips, Chevron Texaco, Valero Energy Corp, Occidental Petroleum Corp, Exxon Mobil Corp, Apache, Unocal, etc. [Business Week Link]
Calls I placed to Calpers and to Lacera, a California pension fund with $30b in assets, were not returned regarding the extent of their oil investments. But for company shares to remain high, the price of oil has to remain high. And it appears mum is the official word -- nobody wants to rock the boat and crash the market.
However, one pension fund insider confirmed the pension funds do indeed have huge investments in oil through S&P alone, "Yes, we've become money grubbers," they said, "hustling the corporations to make benefits payments." Moreover, the same source said "the boards of directors of the pension funds can't possibly manage all the investments so they hire managers, like Barclays, who then do their own thing".
Calpers has agreed to its pension funds being invested in hedge funds as well; Lacera has not. But Calpers and Lacera are each invested in Carlyle Group, Blackstone and other private equity firms. "And once they [private equity firms] have the funds," said the source, "they can do almost whatever they want with them domestically."
And they have! This is what Catherine Fitts calls "the Tapeworm". And the Tapeworm got a lot fatter this week with the teaming up of most of the country 's private equity firms in an $11.3 billion buyout of Wayne, Pa.-based SunGard Data, a company that services Wall Street's trades and processing of transactions. What does this say about the deck being stacked?
The players were: Blackstone Group, Texas Pacific Group, Kohlberg Kravis Roberts, Providence Equity, Goldman Sachs (private equity) and Bain Capital (founded by LDS celebrity Mitt Romney, who seved as Bain's CEO before becoming governor of Massachusetts [Click here: Scoop: Suzan Mazur: Bush And The Mormons]. This consolidation of private equity money has been going on for a couple of years, but the SunGard Data deal was the show stopper.
Fitts, sensing the urgency of starving the Tapeworm, has been advising people through her weekly teleseminars [ http://www.solari.com/outreach/telesem/] to pool money amongst friends - $10, $20, whatever and invest in gold and silver in order to start controlling strategic resources - food, water, farmland, seed. She characterizes today's money as fiat currency and says the Treasury doesn't control it, that it's controlled by the Federal Reserve Bank, which is privately-owned and managed, doesn't provide full disclosure and engages in insider trading and " backdoor huge profits to financial players".
Says Fitts: "When supply and demand forces can be artificially balanced through covert operations and black budget market manipulations financed by warfare and organized crime, the price can stay managed forever . . . "
And that roughly explains a $50 barrel of oil.
Suzan Mazur reports have appeared in the Financial Times,
Economist, Forbes, Newsday, Philadelphia Inquirer (partial
list), and on PBS, CBC and MBC. She has been a guest on
McLaughlin, Charlie Rose, and various Fox television