Q) "What's driving commodities?" A) CALPERS...?

Direct from my friends at what used to be called CSFB:

• What's driving commodities?
  There are likely three main factors at work here:
  
• 1) Global supply/demand fundaments including political risks to supply;
  
• 2) Impact from a weaker US dollar or strength of non-dollar currencies; and
  
• 3) the maturation of commodities as a viable investment class.
  
• Speaking to the last factor, the California Public Employees' Retirement System, the largest U.S. pension fund, said it may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records according to a Bloomberg article. The fund invested its initial $450 million into the commodity markets last year. Calpers, which has $240 billion in assets, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, according to a spokesman for the fund. While many analysts, investors and economists chose to call the influx of money into commodity markets speculation, its time to wake up to the reality that its becoming a viable investment class. What's more is that unlike the equities markets, which can satisfy demand for new investment funds by creating IPOs, the amount of commodities is rather finite. Therefore, the $11-12 trillion invested in equities has an enormous impact when even small portions are re-allocated to commodities. And if you disagree with the conclusion, more importantly ask yourself "will this change?"
  

(Tom Marchetti, Director, Energy Strategy)