Oil crisis simple solution - outlaw margin trading of commodities - why not?

[Cutten]

Quote from Ivanovich:

I wish he was. There would at least be one person there willing to slow this puppy down.

What makes you think they would succeed? Price controls were tried in the 1970s under Nixon, and all they did was cause prices to skyrocket.

High prices cause future supply to increase. If you reduce prices now, either by price controls, margin increases, or whatever, then you are decreasing future supply and increasing demand, which will lead to future prices going even further than before.

 

[Marti Ouimette]

To traveling trader:

I have been telling people that high commodity margin rates from 2% to 20% is the cause of high oil prices for 6 months. It is so nice to find that I am not the only one who thinks these unreasonable oil prices are due to gambling by commodity traders. I have researched margin requirements for oil commodity traders and I find a variety of margin ranging from 2% to 20%, depending on the broker dealer (Heitage West Margin Requirements - http://www.heritagewestfutures.com/margin-requirements.html).

The reason those in charge never mention eliminating margin for crude oil commodity trading is because they are the ones doing the trading! Why shoot the golden goose? Both the president and vice president are from the oil industry. You don't really think they would do something to lower oil prices? That was the whole reason for the Iraq war. 9/11 was just a ruse and we all know now that Bush fixed the information to appear that Iraq was involved, which it was not. Since Bush has been in office oil has gone from $10 a barrel in 1999 to a high of $134 last week. Oil trading has fallen to $127 dollars a barrel, but I notice my gas price has gone up. That is 1340% increase in oil prices and 3 times the amount of the average oil price increase under Republican administrations since 1950, which is 495%. During the same time oil prices average increase was only 35% under Democrat administrations.

The reason eliminating commodity margin in the US would lower our oil prices is because the US is responsible for 50% of crude oil commodity trading around the world. The NYMEX is the largest exchange in the world and sets the benchmark price for crdue world wide. (The World's Commodity Exchanges: Past, Present, Future
http://www.unctad.org/sections/wcmu/docs/c1EM32p35.pdf, p.31).

Oil prices can be kept in check by eliminating or increasing margin required deposits for commodity purchases from the current 2% to 50%, the same as stock market margin credit.

The elimination of stock market credit of 90% between 1929 and 1933 was the major element that caused stock prices to collapse by 90%. President Hoover ordered the Federal Reserve to eliminate margin credit for the purchase of stocks from 90% to ZERO. The same type of price decline could be accomplished in the commodities market by eliminating or decreasing available credit for commodity purchases. This would slow the meteoric rise in oil and food prices caused by the Federal Reserve subsidizing speculators and oil industry insiders. Just like the lack of credit is causing the US economy to shrink, it will also cause commodity prices to decline.

Credit should be eliminated to punish traders for causing the price of oil to zoom skyward.

The only way this will happen is if Congress is inundated by voters’ request to do so. To contact your congressman go to the web site of: Write your Representative - https://forms.house.gov/wyr/welcome.shtml or write your Senator - http://www.congress.org/congressorg/mlm/signup. If you don’t do it, no one will and the next time you fill up your gas tank it will cost $100 and rising.

You are right. Gambling on the commodities exchange should not determine what everyday people pay for oil.

Thanks to traveling trader for your comments
Marti

 

[startraitor]

I coudn't agree more. While were at it, eliminate the ability to leverage your housing purchase and real estate investments. And wiping out consumer credit and commercial paper markets will go a long way too. They just allow people and companies to assume risk and speculate. I am sick of paying people what they are asking for what is legally theirs. We need to intervene in the price discovery mechanism of all asset classes immedietly.

 

[Marti Ouimette]

The evidence is simple. Look at what happened in 1929 when Pres. Hoover eliminated stock market margin credit from 90% to ZERO. The price of stocks fell by 90% from 1929 to 1933. History is a great judge of the ramifications of events.

Certainly with commodity margin deposits required of only 2 to 20%, there are a lot of speculators in crude oil. With only 2% margin required the odds for profit are 50 to 1. How do you like those odds?

On the other hand stock market margin is 50% which results in odds of 2 to 1. If you are a professional commodities trader which odds would you like, 50 to 1 or 2 to 1? Go figure, this isn't rocket science!
Marti

 

[Ialwayslearn]

Quote from Marti Ouimette:

The evidence is simple. Look at what happened in 1929 when Pres. Hoover eliminated stock market margin credit from 90% to ZERO. The price of stocks fell by 90% from 1929 to 1933. History is a great judge of the ramifications of events.

Certainly with commodity margin deposits required of only 2 to 20%, there are a lot of speculators in crude oil. With only 2% margin required the odds for profit are 50 to 1. How do you like those odds?

On the other hand stock market margin is 50% which results in odds of 2 to 1. If you are a professional commodities trader which odds would you like, 50 to 1 or 2 to 1? Go figure, this isn't rocket science!
Marti

Odds for profit 50 to 1???? What??

 

[limitdown]

Quote from travelingtrader:

Oil crisis simple solution - outlaw margin trading of commodities - why not?

As others have pointed out, it would be very easy to pop the commodity bubble and have $35 oil and $1.25 gas if margin trading of commodities was outlawed.

What I don't understand is why this isn't being discussed by the government, regulators, and people that care about mankind as a solution to this sickening speculator induced bubble. All Washington has to do outlaw margin trading of commodities and this speculator induced nightmare will end instantly.

It is pitiful to watch stupid Bush go and ask Saudi Arabia to increase production. This has nothing to do with Saudi Arabia. This is being caused by NYMEX, ICE, and the CFTC - all of which can be controlled by the US government.

In the old days commodity prices were determined in the marketplaced between producer and consumer. Today commodity prices are determined in digital casinos between speculator and speculator.

Gamblers shouldn't determine what ordinary people pay for gas and food. A fair marketplace consisting of consumer and producer and no one else should determine this.

Outlawing margin trading of commodities is the fastest, easiest, only solution. It is time we let the president, congress, regulators and those responsible for this mess (NYMEX, ICE, CFTC) know that decisive action must be taken NOW!

outstanding!!!!!

The backlash continues.....and growing....

wonder if they will try those responsible for treason?

 

[travelingtrader]

Quote from Marti Ouimette:



Oil prices can be kept in check by eliminating or increasing margin required deposits for commodity purchases from the current 2% to 50%, the same as stock market margin credit.

What is really stupid if you think about it is the fact that trading of stocks is much more tightly regulated than the trading of commodities.

If a bunch of speculators want to drive the price of a stock up to a price that does not make sense that is fine, it not going to harm the average person.

However if a bunch of speculators want to drive the price of an essential commodity up to a price that does not make any sense that is a major problem, as it will harm the average person.

Therefore commodity trading should be regulated much more tightly than stock trading. So that means much higher margin requirements (ideally 100%) should be required for commodities as compared to stocks.

 

[murray t turtle]

Quote from travelingtrader:

What is really stupid if you think about it is the fact that trading of stocks is much more tightly regulated than the trading of commodities.

If a bunch of speculators want to drive the price of a stock up to a price that does not make sense that is fine, it not going to harm the average person.

However if a bunch of speculators want to drive the price of an essential commodity up to a price that does not make any sense that is a major problem, as it will harm the average person.

Therefore commodity trading should be regulated much more tightly than stock trading. So that means much higher margin requirements (ideally 100%) should be required for commodities as compared to stocks.

=========================

Don't like the gov or exchanges over regulating;
but sounds like you are right.Some in oil business have openly suggested higher margins on oil speculators.

Interesting timing of this thread start;
5-21,T-trader.

Look on the bright side,MS,GS[both mentioned in US Senate today,oil bubble ,parabolic context]still have plenty of stocks to work with.

Americans may also slow down thier gas hog auto buys;
but demand may still favor a long term oil uptrend,
but nice to see a short or medium term trend change.

 

[SicilianTM]

Quote from Marti Ouimette:

The evidence is simple. Look at what happened in 1929 when Pres. Hoover eliminated stock market margin credit from 90% to ZERO. The price of stocks fell by 90% from 1929 to 1933. History is a great judge of the ramifications of events.

Stocks are not the same as commodities.

Every oil contract has two parties, a buyer and a seller. At expiration the buyer must either sell or take delivery. A speculator might sell, and then buy the next expiration, but the person who ultimately owns the earlier contract at expiration must then either take delivery, or already have an offsetting short.

Because of this, you can't "stockpile" oil using futures. And you can't create demand for the physical by simply bidding up the futures either because someone somewhere will have to want to take delivery or offset, and if not you'll take a bath when you go to sell unless the demand was already there.

 

[Mercor]

Quote from Marti Ouimette:



Certainly with commodity margin deposits required of only 2 to 20%, there are a lot of speculators in crude oil. With only 2% margin required the odds for profit are 50 to 1. How do you like those odds?

Marti

If you raise the margin how can I afford to go short.

Higher margins just give the big money players more control of the market