He also seems to have a pretty superficial understanding of futures markets. For example, there's nothing inherently "hysterical" about contango (future prices higher than current prices). It's a perfectly natural state for many commodities (browse some prices on http://www.cmegroup.com). He also paints a pretty rosy picture of the history of futures markets, but people have complained about speculators causing wild price swings since the beginning, long before index funds came on the scene. And there's nothing new about the way index funds maintain their long positions. Speculators have always had the option of rolling their contracts forward.
Index funds have opened up investment opportunities for a lot of people. Imagine if you had to buy and maintain a server for every app you wanted to put on the web (this is like buying a futures contract directly). Now compare that to a VPS/shared server (this is like buying an index fund). Not a perfect analogy but pretty fitting.
Speaking generally, if people are investing foolishly (i.e. mispricing something) well then they're investing foolishly. This can happen in any market. They'll either adapt or get weeded out. What's the alternative? Does Big Brother or anyone else know what the "correct" price of something is at any point in time?
For one, there's debate over what actually drove up the price of wheat (http://www.economist.com/node/16432870?subjectid=2512631&...). The author glosses over or fails to acknowledge some of the major counterpoints.
He also seems to have a pretty superficial understanding of futures markets. For example, there's nothing inherently "hysterical" about contango (future prices higher than current prices). It's a perfectly natural state for many commodities (browse some prices on http://www.cmegroup.com). He also paints a pretty rosy picture of the history of futures markets, but people have complained about speculators causing wild price swings since the beginning, long before index funds came on the scene. And there's nothing new about the way index funds maintain their long positions. Speculators have always had the option of rolling their contracts forward.
Index funds have opened up investment opportunities for a lot of people. Imagine if you had to buy and maintain a server for every app you wanted to put on the web (this is like buying a futures contract directly). Now compare that to a VPS/shared server (this is like buying an index fund). Not a perfect analogy but pretty fitting.
Speaking generally, if people are investing foolishly (i.e. mispricing something) well then they're investing foolishly. This can happen in any market. They'll either adapt or get weeded out. What's the alternative? Does Big Brother or anyone else know what the "correct" price of something is at any point in time?