Dennis Gartman predicts massive waves of selling in commodities

[Cutten]

Quote from Daal:

game over?
Dont have a link because he said on his letter this morning and its a violation to copy paste it.
Hes a long-term bull but said 'he never believed commodities were an asset class' and that the CFTC will close the swap loophole and impose position limits,this will send billions out to sell.

I think he is a little too early, CTFC chairman and most commisioners were appointed by bush, they are not socialist ignorants. they will close this thing one day im just not sure its now, plus I think they will try to make this ordely as possible, no way they will announce an overnight gigantic margin call on the entire market that can send the CRB crashing and load futures brokers with bad debts
plus what prevents other issuers to create new ETFs and index funds if people are forced out of goldman,aig,rogers because they hit their limit?

This is partly why I am long Brent crude not WTI. However...

Position limits don't apply to cash commodities, or non-US commodities. A position limit makes as much sense as a position limit in cash treasuries or a individual stock i.e. none whatsoever. Besides, pension funds will simply switch offshore to circumvent the rules, or purchase physical stock instead. If anything, position limits should be abolished, and replaced with a "market manipulation" law to prevent artificial squeezes. The position limits rule is a quirk of US futures trading - Eurex for example has no position limits, since they actually believe in free markets, unlike the US futures regulators & exchanges. LIFFE has no position limits. I don't see any vast manipulations occuring in London or Frankfurt, as opposed to the US. All I see is artificial restraint of trade. In any case, each exchange already has the power to impose high margins, or liquidation only trading, as they did with the Hunts in silver - that was pretty effective.

Gartman is also a bit late predicting selling in commodities - all commodities except energy have *already* sold off a lot since March. Oil will eventually top out and then get hammered - with or without any rule change.

Even if you totally disagree with all the above, it remains an indisputable fact that making trading decision on the basis of what the government *might* do at some vague, undefined point in the future, is not a profitable strategy. This advice of his is totally unactionable, and therefore totally useless.

 

[Daal]

Quote from Rtrader2525:

There was more open interest in beans, corn and wheat than ever could have been produced and that of course adds some spec. premium.

I actually dont disagree there is a speculative premium, my only point is wheat doesnt trade at $7.5 from $2.5 some years ago because of speculative premium, some thing with oil. plus cutten has a point, if the ctfc launches a ussr campaign european/international commodity etfs could surge, they will only get all exchanges to adopt position limits when they get ALL international bureaucrats to agree its the right thing, we might need $300 oil to get that

 

[nkhoi]

An investigation announced Thursday into the oil markets by the Commodity Futures Trading Commission is looking into alleged short-term manipulation of crude-oil prices via a widely used price-reporting systems from Platts, a unit of McGraw-Hill (MHP) , The Wall Street Journal reported, citing people familiar with the matter. The agency also is making a similar probe relating to jet fuel, as well as looking at whether the owners of crude-oil storage tanks use their knowledge to make bets on oil futures. The CFTC on Thursday said it started in December a nationwide crude oil investigation surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts BEFORE THE BELL - MAY 30, 2008.

 

[stock_trad3r]

Quote from Daal:

game over?
Dont have a link because he said on his letter this morning and its a violation to copy paste it.
Hes a long-term bull but said 'he never believed commodities were an asset class' and that the CFTC will close the swap loophole and impose position limits,this will send billions out to sell.

I think he is a little too early, CTFC chairman and most commisioners were appointed by bush, they are not socialist ignorants. they will close this thing one day im just not sure its now, plus I think they will try to make this ordely as possible, no way they will announce an overnight gigantic margin call on the entire market that can send the CRB crashing and load futures brokers with bad debts
plus what prevents other issuers to create new ETFs and index funds if people are forced out of goldman,aig,rogers because they hit their limit?

dennis is wrong as usual.

 

[dont]

http://online.wsj.com/article/SB121210611821931167.html?mod=hps_us_whats_news

Point is not if its speculators. Its long term buy and hold investors who are doing the damage.

 

[daddyeaux]

the CFTC will just drive business offshore..

I'm guessing nothing changes

 

[Ivanovich]

Quote from Daal:

I'm referring to a margin call scenario, massive amounts of forced selling against a the normal quantity of bids, is this too foreign to you?

Not foreign at all. I'm just saying that if you don't believe speculation is driving up the price, then you believe most of the price is due to actual buyers of oil - those who take delivery. Therefore, margin calls forcing this "small" percentage of those in the oil market who are not taking delivery won't really do all that much to price.

It's either one way or the other, right?

 

[Cutten]

Quote from Ivanovich:

Not foreign at all. I'm just saying that if you don't believe speculation is driving up the price, then you believe most of the price is due to actual buyers of oil - those who take delivery. Therefore, margin calls forcing this "small" percentage of those in the oil market who are not taking delivery won't really do all that much to price.

It's either one way or the other, right?

Speculation is definitely affecting the price, but only because the fundamentals are also very bullish. If there was adequate supply, then all the speculation in the world would not be able to push the price up 150% in one year. Plenty of big hedge funds and speculators were long oil in 1998 and got creamed as the price fell below $10, and there was not a thing they could do about it because supply was large and demand had collapsed. In today's situation, the trade would just say "Yours, 200 million barrels at $130" if they could. Then when delivery comes due, the specs would be selling at $50 or whatever. Since that's not happening, then clearly there is just not enough oil around.

Since it is obvious that supply/demand are out of whack, speculators get long and that drives the price up - but only until supply catches up. Whether this happens at $50, 75, 100, 150, 200 or 1000 all depends on the exact availability of oil and the demand for it as the price climbs. Obviously up to 100 at least, supply wasn't there at all.

If it was a *purely* speculative market, like say the Hunt silver squeeze in 1979/80, then banning margin trading would send prices down 50%+ in a few days. However it is obviously not a purely speculative market. No one knows exactly what the speculative premium is, but I would say $15 or $20 is a reasonable estimate - that's about 11-15% of the value, noticeable but hardly huge. With speculation banned, oil would be maybe $100-120 at a guess, it might go a tad lower because people would speculate *against* the price based on news of a margin ban. But if the supply/demand stays out of whack, it won't be long - a few months or maybe a year or two - before the price goes back to the highs and then even higher. And in future years it would be higher still, because the lack of speculation would mean less incentive to create future supply.

 

[libertad]

Excellent Commentary All
...................................................................

One should think of all the components of why prices
have moved the way that they have....and in particular what is different than the way things used to be a few years ago....

Speculation
Investment
Geopolitical
Actual demand changes
Supply raw materials
Supply material in process
Supply finished product
Government legalities and mandates


The list gets longer....


Then one should note what portion of the price changes are
due to which item....

This is why there is so much confusion....

To be sure....the solution is not amongst journalism....

 

[taodr]

Yesterday read somwhere person quoting Jimmy Rogers saying it.s all nonsense about speculators. He went on there are 85 million barrels of oil traded 365 days a year. It's real business even saying US stock markets only trade 250 days a year. If I remember where will post.