Billionaire financier George Soros told a Senate hearing that growth of funds designed to mimic the price of crude oil and other energy futures remind him of a similar craze that brought on the 1987 stock market crash.
The surge in popularity of commodity index funds is “intellectually unsound … and distinctly harmful in its economic consequences,” Soros told lawmakers. When speculators enter a market mostly on one side — in this case, betting on rising oil futures — it “distorts the otherwise prevailing balance between supply and demand.”
He likened it to the rush to invest in portfolio insurance more than 20 years ago. When those investors tried to exit the market at the same time, stock markets around the world crashed.
Soros said he is not an expert on oil markets, but has spent years studying market “bubbles” that begin with a trend based in reality, followed by some misinterpretation of that data. He sees no imminent crash in oil prices, however, and said a decline in consumption will not occur unless the U.S. and other developed economies fall into recession.