For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U.S., laws require that the majority of investors in the fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of over $1 million, along with a significant amount of investment knowledge. You can think of hedge funds as mutual funds for the super-rich. They are similar to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more flexibility in its investment strategies.

So, what are we looking at, here? A sophisticated group of investors, working with hedge funds can dump millions of dollars into a hedge fund and manipulate the snot out of particular markets by the sheer volume of their trading. This creates the potential for vast wealth on their part, but, insofar as energy and commodities are concerned, it also creates the potential for increased food, fuel and energy supplies.

In fact, the proponents of ethanol say the rise in the price of corn and corn-based products, including food and corn sweeteners, is more the fault of commodities traders than the increased demand on the corn supply created by the gasohol industry. Nevertheless, whether the price increase comes from increased demand on the supply of corn, or from increased trading and price manipulation in futures and hedge funds, the result is higher food, fuel and energy prices for the consumer.

And, while government agencies are on the look out for alleged manipulation, prices are skyrocketing out of control. This, even with intense scrutiny from regulators and outrage from consumers.

According to Senate testimony, government agencies continue to monitor the market, looking for undue influence and price manipulation. A representative of a regulatory agency testified that:

"the Commission's surveillance staff closely monitor the futures and option market activity of all traders whose positions are large enough to potentially impact the orderly operation of a market."

(ibid)

The government's surveillance on the markets may lead to punitive procedures against traders who are found to be manipulating prices. According to the testimony before Congress:

If any indications of attempted manipulation are found, the Commission's Enforcement Division investigates and prosecutes alleged violations of the CEA and Commission regulations. Subject to such actions are all individuals that are (or should be) registered with the Commission, those who engage in trading on any domestic exchange, and those who improperly market commodity futures or option contracts. (ibid)

Yet, the very power generated by the trading floor presents both the possibility of vast financial rewards as well as intense psychological pressure. In the past, that pressure has lead to outrageous behavior on the trading floor, even to the use of street drugs and pharmacopeia as a way to deal with the stress. According to Business Week's Steve Rosenbush:

While Wall Street still has its rough edges, the culture is far more straitlaced today than in past eras. "It's more institutionalized," says one hedge fund manager. It's no longer acceptable to deal with your stress by hurling a computer on the floor or by indulging in drink, drugs, or alcohol. As a practical matter, the threat of a lawsuit is much higher than before. And traders are generally a more professional group than in past decades. "There weren't as many Wharton MBAs on the scene during the 80s," says the fund manager, who spoke on condition that he not be identified. (Business Week, 10-16-07)

With energy pirates literally hijacking fuel tankers in some parts of the world-off the notorious coast of Somalia and in the treacherous waters of Malaysia, to name just two trouble spots, Americans are extremely vulnerable to pirates in three-piece suits, who ply their trade in the nation's investment houses and fly under the radar of an increasingly angry public.

California electricity and natural gas prices were driven higher because of widespread manipulation and misconduct by Enron and more than 30 other energy companies during the 2000-2001 energy crisis that threatened the state's solvency, federal energy regulators said today. (NYT, March, 2003)

What is good for the aggressive investor in the nation's trading houses, what is good for the managers and investors in the future's markets and hedge funds, often is downright detrimental, even dangerous for consumers-that's the folk who have to pick up the pieces after the sharks have fed. With more families needing energy assistance and less funds available, this is going to be a hard winter-even without the possible manipulation of futures and funds.

Watch out folks. We have a perfect storm brewing and it's gonna blast a big hole in your wallets. Start looking for a second job to pay your heating bill this winter-you're gonna need one.

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