CFTC prepares crackdown on speculators
- Thread starter stock777
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I wouldn't be too sad if they got rid of physical commodity ETF's.
Meanwhile you should read this:
http://www.edhec-risk.com/features/...Position Paper Oil Prices and Speculation.pdf
The big point is that with all of its failings, the market sent a warning, the populace doesn't like this painful message and so it blames the messenger. With oil at current production levels and current energy technologies in use a large global expansion will drive oil prices skyward. Furthermore that price spike will tend to prick other asset bubbles -- in our case the credit and real estate bubbles. But the main problem isn't speculators (though there may be some problems there). The true problem is probably that easy oil is over. We may even have reached something like peak oil. In that case expansions, whether they happen here or in a decoupled Asia for example, will cause prices to rise -- potentially a lot once this supply glut is worked through -- and those price rises if they continue high enough will unfortunately put a ceiling to growth or cause another downturn.
The markets are telling us we need to find an energy source other than oil, or that we need to find a whole lot of oil. Oil prices could fall to $30 again but the general message would still be the same until prices failed to rise despite an economic expansion.
But lower market prices can pose a problem -- lower oil investment, potentially lower alt energy investment, and a false sense of security. People may forget the energy crisis or believe that because of speculators the markets were crying wolf. Remember though that in the old fable the wolf ends up getting the sheep (and maybe the boy too). This is where the gov't can step in, hopefully with a longer memory than the society's lowest common denominator, and heavily push alt energy, battery technology, the whole host of potential solutions to get us away from oil's monopoly on transportation energy, activities which will also be economic stimulus as is necessary during a credit-bubble implosion of the variety which judging from history can last five or ten years.
And of course gov't can screw things up -- like when Iowa/the Farm Lobby criminals decide to hijack biofuel production and push up corn and bean prices needlessly when sugar would be better, therefore causing widespread hunger in the world via higher energy prices. THAT's real manipulation. With farm states having such an out-sized Senate representation is is always a danger.
Back to the CFTC, remember that volatility in markets may increase with over-regulation. I remember a great article in the FT about how people once upon a time blamed volatility in potato prices on potato futures. So politicians shut down the futures markets. Volatility *increased*. Or look at the Baltic Dry Index -- no speculators allowed and it's one of the most volatile markets in the world.
That said lowering position limits seems like a decent idea to me, esp as they look into swaps and so on. What regulators should seek for commodity markets is a heterogeneity amongst speculators. Limiting position sizes may help here.
One interesting idea would be to incentivize trading in back months and/or calendar spread trading in futures as these activities add liquidity to the futures chain where hedgers actually need it rather than only in the front month. The goals of regulation should be to create accurate price discovery and facilitate bona-fide hedging.
Maybe we can imagine that trend followers can exacerbate volatility or bubbles while contrarian and value traders may tend to reduce it. The big ETF's might add to the herding mentality.
But enough! I must speculate in the market...
Meanwhile you should read this:
http://www.edhec-risk.com/features/...Position Paper Oil Prices and Speculation.pdf
The big point is that with all of its failings, the market sent a warning, the populace doesn't like this painful message and so it blames the messenger. With oil at current production levels and current energy technologies in use a large global expansion will drive oil prices skyward. Furthermore that price spike will tend to prick other asset bubbles -- in our case the credit and real estate bubbles. But the main problem isn't speculators (though there may be some problems there). The true problem is probably that easy oil is over. We may even have reached something like peak oil. In that case expansions, whether they happen here or in a decoupled Asia for example, will cause prices to rise -- potentially a lot once this supply glut is worked through -- and those price rises if they continue high enough will unfortunately put a ceiling to growth or cause another downturn.
The markets are telling us we need to find an energy source other than oil, or that we need to find a whole lot of oil. Oil prices could fall to $30 again but the general message would still be the same until prices failed to rise despite an economic expansion.
But lower market prices can pose a problem -- lower oil investment, potentially lower alt energy investment, and a false sense of security. People may forget the energy crisis or believe that because of speculators the markets were crying wolf. Remember though that in the old fable the wolf ends up getting the sheep (and maybe the boy too). This is where the gov't can step in, hopefully with a longer memory than the society's lowest common denominator, and heavily push alt energy, battery technology, the whole host of potential solutions to get us away from oil's monopoly on transportation energy, activities which will also be economic stimulus as is necessary during a credit-bubble implosion of the variety which judging from history can last five or ten years.
And of course gov't can screw things up -- like when Iowa/the Farm Lobby criminals decide to hijack biofuel production and push up corn and bean prices needlessly when sugar would be better, therefore causing widespread hunger in the world via higher energy prices. THAT's real manipulation. With farm states having such an out-sized Senate representation is is always a danger.
Back to the CFTC, remember that volatility in markets may increase with over-regulation. I remember a great article in the FT about how people once upon a time blamed volatility in potato prices on potato futures. So politicians shut down the futures markets. Volatility *increased*. Or look at the Baltic Dry Index -- no speculators allowed and it's one of the most volatile markets in the world.
That said lowering position limits seems like a decent idea to me, esp as they look into swaps and so on. What regulators should seek for commodity markets is a heterogeneity amongst speculators. Limiting position sizes may help here.
One interesting idea would be to incentivize trading in back months and/or calendar spread trading in futures as these activities add liquidity to the futures chain where hedgers actually need it rather than only in the front month. The goals of regulation should be to create accurate price discovery and facilitate bona-fide hedging.
Maybe we can imagine that trend followers can exacerbate volatility or bubbles while contrarian and value traders may tend to reduce it. The big ETF's might add to the herding mentality.
But enough! I must speculate in the market...
http://247wallst.com/2009/07/07/etf...tm_source=rss&utm_medium=rss&utm_campaign=rss
This guy gets it.
wtf is wrong with you people that never see the obvious manipulation that goes on?
didn't your daddy teach ya nothin?
oil specs OWNED you lock, stock and gallon, you fed their greedy maws very time you gassed up at 150 a barrel.
wise up. tell your free market prof's to blow it out their azz
This guy gets it.
wtf is wrong with you people that never see the obvious manipulation that goes on?
didn't your daddy teach ya nothin?
oil specs OWNED you lock, stock and gallon, you fed their greedy maws very time you gassed up at 150 a barrel.
wise up. tell your free market prof's to blow it out their azz
Are you talking to me? It seems you didn't read your own link or what I wrote. Didn't your daddy teach you how to read? The article agrees that fundamentals were involved in the rising prices, and I said speculation was a factor (esp trend followers and ETF's) -- just less important than the real supply and demand issues which have a monumental importance that apparently eludes you.
Look at some simple global supply and demand figures for the last several years and it will do wonders to help you understand oil's price action.
And again -- since you apparently prefer to insult first and read later -- I'd be happy if they shut down the ETF's and welcome stricter position limits.
It would be comforting to think that oil only went up because of market manipulation. The reality is far more serious.
Hi, I think that you have no idea how the oil industry works, But let me tell you something, the biggest especulator in today's commodities market is your Government. They are the One who pushed the Oil and metals prices up destroying the value of the USDollar.
On the other Hand, Today's Oil World doesn't need the US exchange to trade, Singapur, London and China can replace the NYmex with no problem. The Fact is that 70% of the Physical Oil Trading is a Brent Type Oil, not the US Light Sweet Crude.
less player in the financial oil markets will bring more and more volatiliy.
Commodities exchange are here no to create cheap prices, but to discover the right price.
Those old enough to remember the gasoline crisis of 1979 may recall sitting in long lines of cars at filling stations, waiting -- sometimes for hours -- to reach the pump. Yet how many Americans ever made the connection between the price controls of the 1970s and the gasoline shortages of the 1970s? How many have noticed that they haven't been waiting in gasoline lines since Ronald Reagan got rid of the price controls and let the creation of the energy futures market ?
Is interesting that the most over regulated industries in this country are the one in deep troubles.
On the other Hand, Today's Oil World doesn't need the US exchange to trade, Singapur, London and China can replace the NYmex with no problem. The Fact is that 70% of the Physical Oil Trading is a Brent Type Oil, not the US Light Sweet Crude.
less player in the financial oil markets will bring more and more volatiliy.
Commodities exchange are here no to create cheap prices, but to discover the right price.
Those old enough to remember the gasoline crisis of 1979 may recall sitting in long lines of cars at filling stations, waiting -- sometimes for hours -- to reach the pump. Yet how many Americans ever made the connection between the price controls of the 1970s and the gasoline shortages of the 1970s? How many have noticed that they haven't been waiting in gasoline lines since Ronald Reagan got rid of the price controls and let the creation of the energy futures market ?
Is interesting that the most over regulated industries in this country are the one in deep troubles.
There are already position limits on energy futures, along with any other kind of futures position for specs. The CFTC is beginning to enforce the abusers of these limits, which basically excludes me and every other mo-fo on elitetrader. They are going after the likes of GS, which isn't necessarily a bad thing. Do a little research and see how much money GS made in the Oil bubble.
Guys like Goldman Sachs makes most of their money playing against Funds like USO everytime this Fund has to make a rollover in a Contango Market. USO will Lose over 100 million USD over the next 4 days with the rollover and GS is the guy on the other hand. Is a legal ponzi scheme.
True, They also made money during the bubble (like most traders during that period) and the Backwardation situation back in those days, but remember that the US dollar was trading at $1,66 vs the euro and the world was in the top of a hyper credit boom (carry trades, easy money etc).
Once the Euro lost some ground against the USD last summer, at the same moment the prices of oil went south big time.
It's not necessarily a bad thing to put a bigger position limits, but my fears are the development of future interventions.
True, They also made money during the bubble (like most traders during that period) and the Backwardation situation back in those days, but remember that the US dollar was trading at $1,66 vs the euro and the world was in the top of a hyper credit boom (carry trades, easy money etc).
Once the Euro lost some ground against the USD last summer, at the same moment the prices of oil went south big time.
It's not necessarily a bad thing to put a bigger position limits, but my fears are the development of future interventions.
From Wikipedia:
'In 2005, the US Department of Energy published a report titled Peaking of World Oil Production: Impacts, Mitigation, & Risk Management. Known as the Hirsch report, it stated, "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." '
Although trend-following speculators (and here I'll include ETF's) can at times create excess volatility in markets, the real issue is indeed demand that rose into 2008 and supply that didn't. Increasing demand, flat supply: rising prices. It's just that simple.
When demand fell so did prices. It's a market, so specs play a role, but ultimately this is about fundamentals.
Insisting otherwise is just burying your head in the sand and refusing to see the real challenge.
'In 2005, the US Department of Energy published a report titled Peaking of World Oil Production: Impacts, Mitigation, & Risk Management. Known as the Hirsch report, it stated, "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." '
Although trend-following speculators (and here I'll include ETF's) can at times create excess volatility in markets, the real issue is indeed demand that rose into 2008 and supply that didn't. Increasing demand, flat supply: rising prices. It's just that simple.
When demand fell so did prices. It's a market, so specs play a role, but ultimately this is about fundamentals.
Insisting otherwise is just burying your head in the sand and refusing to see the real challenge.
I pretty much agree with that, But what the public don't understand is how this industry works. The US Goverment can create a position limit of 1000 contract for the WTI, But the Big Guys have the money and the legal framework to open 3 dozen shops and trade through them.
Is not the first time somebody do something like that, In the 1970's (no futures market in those days) Marc Rich used to have 2 dozen phantom trading companies around some of the most exotic fiscal paradise and he was able to trade the same oil with his own companies in one location to deprive the prices in that spot market and then sell that oil in another spot market with a hefty premiums.
For example, to deprive artificially the spot market at The mexican Gulf while the North sea Prices were trading at 20 dollar premium. Once the futures market was create he was out of that scheme.. Less participant in this market will only get thing worse.
If the government want to help, They should eliminate some of those Oil ETF like USO.
the whole point of the commodity market was speculation by traders in order to hedge against future price movements and ultimately limit their risk. the futures market had been crucial in keeping supply available when Hurricane Katrina and Gustav shut down drilling and exploration operations in the Gulf of Mexico last year. It's very easy to blame the speculators.
Again, you guys wants some cheaper oil? Ask your Government for more fiscal responsibility.
Is not the first time somebody do something like that, In the 1970's (no futures market in those days) Marc Rich used to have 2 dozen phantom trading companies around some of the most exotic fiscal paradise and he was able to trade the same oil with his own companies in one location to deprive the prices in that spot market and then sell that oil in another spot market with a hefty premiums.
For example, to deprive artificially the spot market at The mexican Gulf while the North sea Prices were trading at 20 dollar premium. Once the futures market was create he was out of that scheme.. Less participant in this market will only get thing worse.
If the government want to help, They should eliminate some of those Oil ETF like USO.
the whole point of the commodity market was speculation by traders in order to hedge against future price movements and ultimately limit their risk. the futures market had been crucial in keeping supply available when Hurricane Katrina and Gustav shut down drilling and exploration operations in the Gulf of Mexico last year. It's very easy to blame the speculators.
Again, you guys wants some cheaper oil? Ask your Government for more fiscal responsibility.