Oil crisis simple solution - outlaw margin trading of commodities - why not?
- Thread starter travelingtrader
- Start date
There is no relationship whatsoever between the true economic value of oil and the gambling activities that occur at NYMEX and ICE. The CEOs of the big oil companies know this and the sooner the rest of the world realizes it the better off we will all be.
The true economic value of oil is something that can only be determined in a marketplace consisting of consumer and producer and no one else. The "price discovery activity" that goes on at these exchanges has nothing to do with price discovery as economists define it. It is an arm wrestling match between speculator and speculator. And in an uptrend NO ONE wants to be short regardless of whether the uptrend is justified or not.
The companies that own the oil however are more than happy to let a bunch of goofballs that do not know what is really going on make the oil companies rich. I am sure they think what is happening is pure insanity. The oil executives are not going to tell congress that NYMEX is a silly game that has nothing to do with economic reality, even though they know that it is. Well actually they might if oil went to $10 a barrel. But as long as they are profiting from NYMEX's massive reality distortion they will keep quiet.
One of the most successful traders of all time once explained to me his strategy. It was to buy what is going up, sell what is going down, and manage risk better than anyone else. I am sure he has been long oil the past few months but I am absolutely certain that fundamentals had nothing to do with why he took that position. He is just following the trend like everyone else.
And this is how we decide what people pay for gas and food? If humans are that stupid maybe they deserve what they get.
The true economic value of oil is something that can only be determined in a marketplace consisting of consumer and producer and no one else. The "price discovery activity" that goes on at these exchanges has nothing to do with price discovery as economists define it. It is an arm wrestling match between speculator and speculator. And in an uptrend NO ONE wants to be short regardless of whether the uptrend is justified or not.
The companies that own the oil however are more than happy to let a bunch of goofballs that do not know what is really going on make the oil companies rich. I am sure they think what is happening is pure insanity. The oil executives are not going to tell congress that NYMEX is a silly game that has nothing to do with economic reality, even though they know that it is. Well actually they might if oil went to $10 a barrel. But as long as they are profiting from NYMEX's massive reality distortion they will keep quiet.
One of the most successful traders of all time once explained to me his strategy. It was to buy what is going up, sell what is going down, and manage risk better than anyone else. I am sure he has been long oil the past few months but I am absolutely certain that fundamentals had nothing to do with why he took that position. He is just following the trend like everyone else.
And this is how we decide what people pay for gas and food? If humans are that stupid maybe they deserve what they get.
[To: Wrongside
If you don't think big money ALREADY controls commodity prices, you are wrong. You do not have to have any net worth to trade stocks, but one can not trade commodities unless they have a liquid net work, excluding their home $100,000, last I was a stock broker.
Big oil companies are the biggest oil commodity traders in the market. They buy oil commodities and other depravities, causing the price to go up, then raise the price to the public because oil prices went up on the NYMEX exchange. It is clear that when this issue is not addressed by this administration, and they lie to the public trying to make dumb consumers think that a trip to kiss the ring finger of the Saudi Arabian King, while we are simultaneously spreading democracy in Iraq, will lower oil prices, they are either lying, are totally disingenuous or too dumb to run a country (most likely since this country is going down the drain fast).
Do not tell me this administration does not know that the benchmark price of oil is determined by NYMEX commodity traders, not only the largest exchange in the WORLD but also comprising 50% of total world oil commodity trading (The World's Commodity Exchanges: Past, Present, Future
http://www.unctad.org/sections/wcmu/docs/c1EM32p35.pdf, p.31).
Rebuttal?
Evidently some people are happy to pay $4 a gallon for gas and support triple digit million dollar salaries for the oil executives. The top people from this administration are from the oil industry. Bush, Cheney and Rice who worked for Chevron before being appointed as Sec of State, just to mention a few. Oil is very well represented in this administration. Who isn't represented is middle class Americans, but I am sure they will take care of that on November 3, 2008!
Marti
If you don't think big money ALREADY controls commodity prices, you are wrong. You do not have to have any net worth to trade stocks, but one can not trade commodities unless they have a liquid net work, excluding their home $100,000, last I was a stock broker.
Big oil companies are the biggest oil commodity traders in the market. They buy oil commodities and other depravities, causing the price to go up, then raise the price to the public because oil prices went up on the NYMEX exchange. It is clear that when this issue is not addressed by this administration, and they lie to the public trying to make dumb consumers think that a trip to kiss the ring finger of the Saudi Arabian King, while we are simultaneously spreading democracy in Iraq, will lower oil prices, they are either lying, are totally disingenuous or too dumb to run a country (most likely since this country is going down the drain fast).
Do not tell me this administration does not know that the benchmark price of oil is determined by NYMEX commodity traders, not only the largest exchange in the WORLD but also comprising 50% of total world oil commodity trading (The World's Commodity Exchanges: Past, Present, Future
http://www.unctad.org/sections/wcmu/docs/c1EM32p35.pdf, p.31).
Rebuttal?
Evidently some people are happy to pay $4 a gallon for gas and support triple digit million dollar salaries for the oil executives. The top people from this administration are from the oil industry. Bush, Cheney and Rice who worked for Chevron before being appointed as Sec of State, just to mention a few. Oil is very well represented in this administration. Who isn't represented is middle class Americans, but I am sure they will take care of that on November 3, 2008!
Marti
Not really, i dont know what you mean by 'old' days, but there have been futures-like arrangements in the rice-market in Japan in the 17th century, or short selling of stocks in europe since the 18th century. 3rd party financing for deals is also not exactly a new development.
The banning of onion futures in the 50ies for simmilar reasons was also not really a success story (much more volantile prices and intransparent price discovery).
WTF are you talking about????? so you're saying that if stocks cannot be bought on margin, you have 1:1 odds of making money. guaranteed profit!!
i nominate this for et's dumbest post of 2008. believe you me, to be nominated for such an award on this forum is quite a feat. there have been some really stupid posts but this takes the cake.
I don't think that $10 increase in oil in a day is due to margin traders.
Then who is it due to? Everyone is a margin trader in this market including producers, funds, institutions etc.
Reply:
You can't get much lower than the current margin requirement of 2%, unless you pay commodity traders to trade like Japan did a couple of years ago when their interest rate was -1%. Right now the rules are traders can borrow 98% of their trading cost and only put up 2%. Well I guess that could be lowered to 1%!
Margin is too low and encourages all speculators to move away from stocks and options to trade commodities when margin is as low as 2%. At least if it were 50% then the stock, bond and commodity market would trade on an even playing field, and commodities would more readily reflect their true value.
Thanks for your comments1
Marti