Testimony of
Michael W. Masters
Managing Member / Portfolio Manager
Masters Capital Management, LLC
before the
Committee on Homeland Security and Governmental Affairs
United States Senate
May 20, 2008


Good morning and thank you, Mr. Chairman and Members of the Committee, for the
invitation to speak to you today. This is a topic that I care deeply about, and I
appreciate the chance to share what I have discovered.

I have been successfully managing a long-short equity hedge fund for over 12 years
and I have extensive contacts on Wall Street and within the hedge fund community. Itʼs
important that you know that I am not currently involved in trading the commodities
futures markets. I am not representing any corporate, financial, or lobby organizations. I
am speaking with you today as a concerned citizen whose professional background has
given me insight into a situation that I believe is negatively affecting the U.S. economy.
While some in my profession might be disappointed that I am presenting this testimony
to Congress, I feel that it is the right thing to do.

You have asked the question ??Are Institutional Investors contributing to food and energy
price inflation?? And my unequivocal answer is ??YES.? In this testimony I will explain
that Institutional Investors are one of, if not the primary, factors affecting commodities
prices today. Clearly, there are many factors that contribute to price determination in the
commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor,
and one that presents a problem that can be expediently corrected through legislative
policy action.
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I would like to conclude my testimony today by outlining three steps that can be taken to
immediately reduce Index Speculation.

Number One:
Congress has closely regulated pension funds, recognizing that they serve a public
purpose. Congress should modify ERISA regulations to prohibit commodity index
replication strategies as unsuitable pension investments because of the damage that
they do to the commodities futures markets and to Americans as a whole.

Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position
limits must ??look-through? the swaps transaction to the ultimate counterparty and hold
that counterparty to the speculative position limits. This would curtail Index Speculation
and it would force ALL Speculators to face position limits.

Number Three:
Congress should further compel the CFTC to reclassify all the positions in the
Commercial category of the Commitments of Traders Reports to distinguish those
positions that are controlled by ??Bona Fide? Physical Hedgers from those controlled by
Wall Street banks. The positions of Wall Street banks should be further broken down
based on their OTC swaps counter-party into ??Bona Fide? Physical Hedgers and
Speculators
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