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Yet another OP on commodity speculation

Posted by david52 z5CO (My Page) on
Wed, Apr 11, 12 at 9:54

THE drastic rise in the price of oil and gasoline is in part the result of forces beyond our control: as high-growth countries like China and India increase the demand for petroleum, the price will go up.

But there are factors contributing to the high price of oil that we can do something about. Chief among them is the effect of "pure" speculators - investors who buy and sell oil futures but never take physical possession of actual barrels of oil. These middlemen add little value and lots of cost as they bid up the price of oil in pursuit of financial gain. They should be banned from the world's commodity exchanges, which could drive down the price of oil by as much as 40 percent and the price of gasoline by as much as $1 a gallon.

Today, speculators dominate the trading of oil futures. According to Congressional testimony by the commodities specialist Michael W. Masters in 2009, the oil futures markets routinely trade more than one billion barrels of oil per day. Given that the entire world produces only around 85 million actual "wet" barrels a day, this means that more than 90 percent of trading involves speculators- exchanging "paper" barrels with one another.

Because of speculation, today's oil prices of about $100 a barrel have become disconnected from the costs of extraction, which average $11 a barrel worldwide. Pure speculators account for as much as 40 percent of that high price, according to testimony that Rex Tillerson, the chief executive of ExxonMobil, gave to Congress last year. That estimate is bolstered by a recent report from the Federal Reserve Bank of St. Louis.

Many economists contend that speculation on oil futures is a good thing, because it increases liquidity and better distributes risk, allowing refiners, producers, wholesalers and consumers (like airlines) to "hedge" their positions more efficiently, protecting themselves against unseen future shifts in the price of oil.

But it's one thing to have a trading system in which oil industry players place strategic bets on where prices will be months into the future; it's another thing to have a system in which hedge funds and bankers pump billions of purely speculative dollars into commodity exchanges, chasing a limited number of barrels and driving up the price. The same concern explains why the United States government placed limits on pure speculators in grain exchanges after repeated manipulations of crop prices during the Great Depression.

The market for oil futures differs from the markets for other commodities in the sheer size and scope of trading and in the impact it has on a strategically important resource. There is a fundamental difference between oil futures and, say, orange juice futures. If orange juice gets too pricey (perhaps because of a speculative bubble), we can easily switch to apple juice. The same does not hold with oil. Higher oil prices act like a choke-chain on the economy, dragging down profits for ordinary businesses and depressing investment.

When I started buying and selling oil more than 30 years ago for my nonprofit organization, speculation wasn't a significant aspect of the industry. But in 1991, just a few years after oil futures began trading on the New York Mercantile Exchange, Goldman Sachs made an argument to the Commodity Futures Trading Commission that Wall Street dealers who put down big bets on oil should be considered legitimate hedgers and granted an exemption from regulatory limits on their trades.

The commission granted an exemption that ultimately allowed Goldman Sachs to process billions of dollars in speculative oil trades. Other exemptions followed. By 2008, eight investment banks accounted for 32 percent of the total oil futures market. According to a recent analysis by McClatchy, only about 30 percent of oil futures traders are actual oil industry participants.

Congress was jolted into action when it learned of the full extent of Commodity Futures Trading Commission's lax oversight. In the wake of the economic crisis, the Dodd-Frank Wall Street reform law required greater trading transparency and limited speculators who lacked a legitimate business-hedging purpose to positions of no greater than 25 percent of the futures market.

This is an important step, but limiting speculators in the oil markets doesn't go far enough. Even with the restrictions currently in place, those eight investment banks alone can severely inflate the price of oil. Federal legislation should bar pure oil speculators entirely from commodity exchanges in the United States. And the United States should use its clout to get European and Asian markets to follow its lead, chasing oil speculators from the world's commodity markets.

Eliminating pure speculation on oil futures is a question of fairness. The choice is between a world of hedge-fund traders who make enormous amounts of money at the expense of people who need to drive their cars and heat their homes, and a world where the fundamentals of life - food, housing, health care, education and energy - remain affordable for all.
- end article -
Joseph P. Kennedy II, a former United States representative from Massachusetts, is the founder, chairman and president of Citizens Energy Corporation.

end quote

The reason I'm beating this forum dead horse is because I'm now seeing a blind acceptance/resignation to this unfettered speculation, not only in oil but commodities as well. Just nice to see that some people are fighting back.

and just stumbled on this, a FAO file, .pdf, that gives an interesting history of food markets, speculation, riots and revolutions, something to keep in mind as the big banks play with food and fuel prices.

http://www.fao.org/docrep/013/i2107e/i2107e13.pdf

Here is a link that might be useful: link


Follow-Up Postings:

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RE: Yet another OP on commodity speculation

I heard an excellent program the other day on German radio about the shift in laws there that enabled food to be traded speculatively as a commodity by those outside the ag business. Lots of it was applicable to the US too. I'll try to track it down and summarize.


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RE: Yet another OP on commodity speculation

Thanks for continuing to beat the proverbial drum, David. And thanks for the FAO report, one that I missed.

I'll wait for Hay-ward to come forward with his usual argument that there is no speculation in volved, just good trading on free markets.


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RE: Yet another OP on commodity speculation

David you are a great asset of useful info. We may have to put you on the market for speculations. No all jokes aside. Thank you.


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RE: Yet another OP on commodity speculation

I have too much on my plate already to go though this nonsense again so soon. So, I'll post this and then finish up with my taxes.

Same ole, same ole. You'll never run out of idiots quoting, for support, other idiots about the "evils of speculation". I just can't keep up.

I did take a look at Joseph Kennedy's Wikepedia page

He definitely qualifies as an idiot.

"Two years later, Kennedy asked the Roman Catholic Archdiocese of Boston for an annulment of the marriage on the grounds of "lack of due discretion of judgment", meaning that he was mentally incapable of entering into marriage at the time of his wedding."

Pretty much sums up his life.

This article is from the New York Times Opinion page. I just wasted one of my allowed 10 visits to the NYT on his garbage.

I'm surprised it didn't appear in the Religion section where it should have been.

The really sad thing is that people believe this kind of nonsense. Never understanding that the world will be worse off... higher prices, more suffering... if idiots like this Kennedy get their way. And they will. That's the really sad part.

God help us all.

Hay


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RE: Yet another OP on commodity speculation

This stuff leads to revolutions. See 'Arab Spring' - I'd argue that the plate was set with the preceding food riots.

If you take the argument that $1.00 on the price of gas is due to speculation, think of it as a 'tax'. Not going to better roads, helping our veterans, fighting forest fires, helping the needy. Instead the funds go to the wealthiest, who in turn pay minimum Federal taxes due to manipulating congress.

It is an astounding transfer of wealth.


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RE: Yet another OP on commodity speculation

"If you take the argument that $1.00 on the price of gas is due to speculation,"

If if's and and's were pots and pans, the whole world would be a kitchen.

I just popped back in and then I'm going to turn off my computer so I can get some work done. But, because I like you people in spite of your ignorance, I'm bringing you a present. I'm surprised you hadn't discovered and posted it before.

When you run out of idiots to quote, here's 68 more for you.

Never say I didn't give you something.

Enjoy!!!!

Hay


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RE: Yet another OP on commodity speculation

I compliment you on your determination, polite discourse and more importantly for the good information you share.

I always find your posts informative, well constructed and thought provoking.


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RE: Yet another OP on commodity speculation

High praise for Hay-less! Just kidding... I believe you might have been directing the accolades to David52.

Unlike myself, David rarely takes after erring posters but focuses on the merits or lack of merits of the material and arguments, not on personalities and their religious affiliations.


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RE: Yet another OP on commodity speculation

Thank you so much Marshall!!! Yes my post was directed at David.

Mind you, if taken with a serious dose of sarcasm ,it could be directed at someone else!


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RE: Yet another OP on commodity speculation

I'll add this as a companion to yours.

The Book of Morgan...

The story itself is an age-old chronicle of greed and corruption filled with intrigue and dirty dealings. It illustrates how Morgan Stanley, among others, took the hidden world of commodities trading from a $10 billion industry to a $450 billion business by maneuvering through generous loopholes created by Congress. It shows how Morgan Stanley not only dominates the trading arena but how it has become a full-fledged Big Oil company from transportation to terminal storage to having an ownership stake in the very exchange that half of the world's oil is traded on.
So with that, I invite you to watch the video and judge for yourself why the price of oil has skyrocketed. The purpose of presenting it this way is to open more eyes as to how rotten our system truly is and to elevate the dialogue about one of the most crucial economic elements of our daily lives. In the next several months we will be bombarded with finger pointing and accusations with respect to gasoline prices as the presidential campaign heats up. But few of the arguments you will hear will resemble the truth. For the truth, my friends, can only be found in the gospel according to Wall Street−and "The Book of Morgan."

Here is a link that might be useful: link


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RE: Yet another OP on commodity speculation

These middlemen add little value and lots of cost as they bid up the price of oil in pursuit of financial gain. They should be banned from the world's commodity exchanges, which could drive down the price of oil by as much as 40 percent and the price of gasoline by as much as $1 a gallon.

Which administration will have the balls to tackle this on behalf of the general public?


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RE: Yet another OP on commodity speculation

Sometimes I get a taste of what it must have been like to be Galileo. Not that I'm at all in the same league as he, but, still, ....

I've always scored in the 95+ percentile on intelligence and achievement tests.

Get another 15 or 80 so people in here to agree with Joe Kennedy, the perpetual drop out, and I'll feel right at home.

I try to be humble. Sometimes it's just too much.

Hay


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RE: Yet another OP on commodity speculation

Since they are all corporate lackeys regardless of party, Esh, I doubt it's going to happen any time soon, excepting some kind of lightning-strike revolution.


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RE: Yet another OP on commodity speculation

I've seen it all! David52 is standing behind a hedge fund operator whose fund performs best when oil prices are dropping! airlines! trucking! Cars! Shipping! All those reported just in Feb on his 13F! Gotta love it! masters may not actually own commodities, but he might as well own them given his portfolio, which also includes derivatives!

BUSTED: Meet The Hedge Fund Manager Pushing The Government's New Attack On Speculators
Courtney Comstock:April 22, 2011:3,715:14

�0�4

Meet Michael Masters.

He invests in stocks that are hurt by rising gas prices, he blames speculative traders in the oil market, and he subtly lobbies the government to do something about it.

The most incredible thing: it has worked, twice. Or he has an uncanny ability to talk about speculation in the oil markets right before the government takes action against speculation (which could be the case, because gas prices spiked).

When yesterday, the President announced his decision to investigate Wall Street speculators for illegally causing the recent spike in gas prices, we suspected that Masters' interview on Dan Rather's HDNet show, Dan Rather Reports: Gas Pains, on April 19th, might have had something to do with it.

Masters, who has criticized commodities "speculators" for at least the past 3 years, told Rather that speculators are to blame for rising gas prices. Then on April 21, as gas price hit $5 per gallon, President Obama announced that he was putting a team together to investigate illegal speculation in oil markets on Wall Street.

Now before we go on, you need to check out his latest 13f, a report of what Masters' hedge fund.

Here's what he's investing in:

American Airlines
Delta
General Motors
US Airways
Advanced Battery Technologies, a maker of electric car batteries
Private equity companies like KKR and Och Ziff
Almost Masters' entire portfolio of investments are affected by the price of oil (the PE companies, not so much).

And what happened was this: Days after Dan Rather said, "Masters says a recent surge in speculation has thrown the oil market out of balance, making prices at the pump rise and fall at the him of Wall Street."

Obama announced the team's new investigation, saying:

"[The team's job] is to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators."

It sounds like Obama is basically investigating whether or not there is any truth to what Masters suggested:

"[The big players, Goldman Sachs-- go down the line] are central to the story. Because they are the financial intermediaries behind the scenes and the more they can promote commodities to institutional investors-- the higher they can effectively drive the price."

"Goldman Sachs made a recommendation to sell crude to their clients [last week]. And crude fell the most its fell in several months. It fell about eight dollars a barrel. And what's more interesting is the price fell without any supply and demand changes."

So who the heck is Michael Masters?

He claims to be a Wall Street insider with tons of connections. In a testimony he gave before Congress in 2008, he said, "I have been successfully managing a long-short equity hedge fund for over 12 years and I have extensive contacts on Wall Street and within the hedge fund community.� Itʼs important that you know that I am not currently involved in trading the commodities futures markets."


Read more: http://articles.businessinsider.com/2011-04-22/wall_street/30088013_1_gas-prices-michael-masters-speculators#ixzz1rmRkHGAr


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RE: Yet another OP on commodity speculation

What an incoherent mess of seeming causal connections scattered across commodity and financial sectors. And pooooor David52 hanging out these exposed and supposedly embarrassed.


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RE: Yet another OP on commodity speculation

Seemingly causal connections - you're funny Marshall!

Masters hedge fund clearly has a financial interest in low priced oil.

Good article in Institutional Investor. I also like learning that Masters had his fund registered in the Virgin Islands to get prefrential tax treatment.

David, you still think this guy is something more than an impartial hack?

Here is a link that might be useful: Hack


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RE: Yet another OP on commodity speculation

Yes, indeed, same ole, same ole. It seems like only yesterday that Dave brought us Mr. Masters to support his religious views (Poor Galileo. It must have been hard.): One more reason to despise those fat cats

Yes, we despise them until we need'em....

And I posted, on that thread, the same history of this hedge fund operator and his postitions as you did. Exactly. So don't think we've heard the last of it, jmc01. Same ole, same ole.

Mr. Masters? If I had brought him out to support one of my positions, Dave would have been all over it.

He's a speculator!!! Evil until we need'em.

"Masters generally turns over about 70% of the book within six months or less, with positions often being held only a matter of days. More than half of it is usually placed in listed options (long both puts and calls), so the portfolio can look quite different over time. For instance, Marathon Oil showed up among Masters' largest holdings in March 2011 but was nowhere to be found in December 2010.
Trades can have a fundamental element, but nearly all of them are heavily influenced by Masters' judgment about how other groups of market players (mutual funds, pension funds, hedge funds and the like) invest and how their movements in the market will affect securities."

He certainly must take advantage of that awful "15% carried interest" tax that Dave is always preaching about.

"Although investors say Masters started out charging no management fee, he now takes the standard 2% of assets under management. He charges a 20% performance fee on the first 35% return..."

All taxed at 15%. Yes, we despise'em until we need'em.

"Masters ended up hiring three graduate students from NYU for an initial six-month stint at the hedge fund's St. Croix offices."

We hate Romney. We love Masters.

"Masters told the Senate that hundreds of billions in investment dollars entering the commodities futures markets had turned speculators into virtual hoarders"

A virtual hoarder? What in the world is that?

"Others just blasted the economic reasoning underpinning his testimony. Paul Krugman, the Nobel Prize-winning economist and New York Times columnist, called it "just stupid," while Michael Dunn, the outgoing Commodities Futures Trading commissioner, said recently that the position limits Masters advocated may be, at best, "a cure for a disease that does not exist or at worst, a placebo for one that does."

It says in the Bible that you can't worship two Gods. So, which is it? Masters, the hedge fund operator and speculator who takes advantage of all the evil you think you see, or Krugman.

We despise'm til we need'em.

Hay


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RE: Yet another OP on commodity speculation

Gee. Am I the only one who notices that this guy as well benefits from rampant speculation? The bigger the swings, the more money he makes? You know, when the bubble bursts?

None of which negates the detrimental to the rest of the world / benefits the tiny class of speculators position that I'm talking about.

Lee Raymond, the CEO of Exxon, and the Federal Reserve Board of St Louis, and Goldman Sachs (now a leading oil company) all say speculation is a major part of the price increase. But Hay says no. Oh, well, that means that its an unsettled controversy.

Remember who gets the money when you're paying that extra $10 - $20 bucks every time you fill up.


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joe schmo

You know, if this man, Joe Kennedy, didn't have the name Kennedy, if his name was Joe Schmo, and didn't have all the inherited wealth created by his speculator grandfather, we'd be giving him the same respect and consideration that you give my cousin, Vinnie.

We hate'm til we need'em.

Praise the Lord!!!

Bye, now. I need to go work.

Hay


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Bye

"Lee Raymond, the CEO of Exxon, and the Federal Reserve Board of St Louis, and Goldman Sachs (now a leading oil company) all say speculation is a major part of the price increase. But Hay says no. Oh, well, that means that its an unsettled controversy."

Krugman? Buffet?

Hay has the true God(s) on his side.

You worship false idols.

Hay


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RE: Yet another OP on commodity speculation

The G20? The European Union? Yeabut Ramond runs an oil company, and Goldman Sachs is one of the major players in the speculative market. Which is like me playing a pair of kings to your tens (<=== gambling lingo).

The point that some seem so unwilling to grasp is that if the population of Egypt believes, rightly or wrongly, that the 5 fold increase in their daily budget for bread is due to speculation, and they see the politically connected profiting from the huge increase, they over-throw the government.

Rolling rolling rolling, hear those tumbrils rolling, Raw-HIDE


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RE: Yet another OP on commodity speculation

Hay-hide is amusing when he attacks the speculative practices of Masters in detail while denying the downstream effects of speculation on commodity prices. I need to get some of them rose-colored bubbles and tall ones Hay-sip is using. There must also be a pink elephant in there with him on his altar of Investor Gods.


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RE: Yet another OP on commodity speculation

JMC, why are gas prices so high?


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RE: Yet another OP on commodity speculation

"The G20? The European Union? Yeabut Ramond runs an oil company, and Goldman Sachs is one of the major players in the speculative market. Which is like me playing a pair of kings to your tens (<=== gambling lingo)."

You need to add circuspeanut, marquest, chase, esh and maggie to your list. The more names you can add, the more it bolsters your beliefs.

Let me sure I understand you here. You're saying that, if someone from Goldman Sachs or JP Morgan comments on some aspect of finance and the trading markets, then, since, they're the experts, we're going to accept whatever they say. We're not going to ask for any proof. We're not going to listen to any liberal outsiders like, oh, say, Paul Krugman or Warren Buffet who might say otherwise?

Hallelujah!!!! I think I've been born again.

I'm glad to see you've shown your hand.

Marshall, your good alter boy in the Church of the Everlasting Despicableness can blow out the candles now.

Praise the Lord. Amen.

Hay


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Altered Reality

"Hay-hide is amusing when he attacks the speculative practices of Masters in detail while denying...."

Marshall, Alterboy that you are, I'm not attacking any of his "speculative practices". It just seems that, if you'r going to be burning witches at the stake, you shouldn't be allowed to bring in other witches to help you convict them.

Make sense? (Whoops. Don't try to answer that. I forget we're in the midst of a religious crusade. (Poor Galileo.))

Hay


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RE: Yet another OP on commodity speculation

Praise the LORD! Hay-soul has been saved:

"Marshall, your good alter boy in the Church of the Everlasting Despicableness can blow out the candles now."

You'll have to address your complaint's about Master witch to David52, the Disciple.


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Why are gas prices so low?

"JMC, why are gas prices so high?"

Why are gas prices so low? In some part because the trading markets help to keep the markets efficient. Follow the teachings of the Church of the Everlasting Despicalbleness and you'll have even higher prices, more volatility and more suffering. Your choice.

Why are the prices not where you'd prefer?

Might have something to do with the fact that there is, in this case, a real finite amount of oil in this earth and we want more and more every year. Might have something to do with the fact that just a handful of countries like Saudi Arabia, Canada, Venezuela and Iran own most of that oil and, being the good stewards that they are, they're doling it out to us in a way designed to maximize their wealth.

Might have something to do with the fact that countries like China, Brazil and India, countries with populations that dwarf ours, that yesterday were huddled around burning dung piles are now driving around in convertible Mustangs and that takes more and more of the limited oil in this world.

Might have something to do with the fact that Obama just sent the second aircraft carrier into the Persian Gulf and some producer figured that it might make sense to hold just a little bit of oil off the market. Just in case. (And if Israel bombs Iran tomorrow, we'll thank him for that). Might have something to do with the fact that whenever you cut back on oil, even just a small amount, the price will rise disproportionately because we can't adjust fast enough. Me and you still need to get to work tomorrow, no matter what the price.

Lots of reasons like that.

But, applying Occram's rule (Never use a complicated explanation when something simpler will work.):

"Virtual Hoarders"!!!

Hay


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RE: Yet another OP on commodity speculation

Ok, I got one......

So an avid saturday night dancer is planning on attending a charity dance. Men, or women, pay a minimum of 1 dollar for a ticket, per dance, the proceeds going to the poor fund, and the music won't start until all the couples are paired for each dance. 50 men and 50 women dancers plan to attend.

Along come the traders from Goldman Sachs, buying up all the tickets they can get their hands on, figuring they can make a buck trading them to other speculative buyers from Bain Capital and the Koch brothers hedge fund, who also believe they can make money trading the tickets to Goldman Sachs.

And you think the price per dance won't go up.

/howmidoin?


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RE: Yet another OP on commodity speculation

"But, applying Occram's rule..." another Hay-slip.

Perhaps he was meaning to apply Occam's Razor but was dulled by excessive posturing.


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RE: Yet another OP on commodity speculation

Dave, I need to focus on other things right now.

Until I can get back:

From one of your posts in the despicable thread

"The amount of fund money invested in commodity indexes has climbed from just $13-billion (U.S.) in 2003 to a staggering $260-billion in March 2008, according to calculations based on regulatory filings. Michael Masters, a veteran U.S. hedge fund manager, warned a Senate hearing this month that this number could easily quadruple to $1-trillion, if pension funds allocate a greater portion of their portfolio to commodities, as some consultants suggest they are poised to do. Because agricultural markets are small - relative to stock markets - the amount of cash pouring in gives these funds substantial clout. Mr. Masters estimated that that these big institutional investors control enough wheat futures to supply the needs of American consumers for the next two years, and blamed the "demand shock" from these recent entrants to the commodities markets as arguably the primary factor behind the sudden take-off in food prices."

From one of your posts in this thread:

"Today, speculators dominate the trading of oil futures. According to Congressional testimony by the commodities specialist Michael W. Masters in 2009, the oil futures markets routinely trade more than one billion barrels of oil per day Given that the entire world produces only around 85 million actual "wet" barrels a day, this means that more than 90 percent of trading involves speculators- exchanging "paper" barrels with one another."

This is the jumping off point for a lot of the arguments for why "speculation" is doing its evil thing in these markets. You can't read a report about the "evils of speculation" that somehow doesn't bring in the fact that there can be a very substantial amount of trading, a very large amount of positions, however you want to measure these things, as compared to any number of other things. You want to argue that this is affecting the actual price of the underlying commodity... always in one direction only: UP.

If you can get over this thinking, you'll have made great progress. (Not to be confused with "progressive" which has nothing whatsoever to do with progress.)

I'm here to help, but it'll have to wait.

Until then, some things for you to think about.

Think about what Krugman, in the article I posted in the despicable thread, says about these big numbers and how they're largely irrelevant:

"My experience in these debates is that the response consists of a blizzard of statistics about the size of forward positions, etc.. But remember, every purchase of a futures contract is also a sale - there's someone on the other side. And neither the purchase nor the sale changes
the physical quantity of the commodity available to the market.

I'm still waiting for Labrea or Maggie to bring us a picture of a billion tons of rice delivered to Goldman's headquarters at 200 West Street. I really don't think they're going to find any rice in the streets there. Do you?

Why not? Because, if Goldman buys a contract in their Exploitation Fund, then, unless Maggie shows us otherwise, and she won't, of course, Goldman must be selling that contract before delivery date, before the contract expires. If Goldman buying (I wish we'd started out using the proper terminology: betting that the price will go up) a contract has such a detrimental effect, (which it doesn't), then wouldn't that effect be countered when they turn around and "sell" that contract?

Or, show me a picture of a billion tons of rice outside 200 West Street.

Here's some more things for you to think about. The Brent Crude future's market doesn't even have a "delivery". Any open positions in the expiring month are settled in cash at the current Cash Market price. That market is nothing but bets. No one delivers. No one takes delivery.

That same thing happens in some of the Stock index futures trading. At the end of the expiration of the S&P Index futures the settlement price is just the closing price of the index on that day. No underlying stocks are delivered.

You, me and Marshall can trade bets all day long over the price of oil. We can bet big, we can bet small. Nothing will happen to the price of gasoline down at the corner.

Go over to Intrade. The basic idea is that you "buy" a trade. Look at the market in Obama being elected. Right now, for about $.60 you can "buy" (bet)
that Obama will be elected. I don't care what you do, at the end of the day on the day of the election in November, that contract is going to be worth either $0 or $1.

Get Goldman in there to "buy" up a lot of these contracts and that won't change the result in November. How many contracts can Goldman "buy"? Pretty much unlimited amounts. At the right price I'll take the other side of the bet myself. You, too. Goldman can basically buy as much of this as they want and still, come November, just as before, with or without Goldman in the INtrade market, that bet will be worth $0 or $1.

Think about it.

If we could figure out how to affect the underlying markets by betting on something, me and Marshall would be dancing with pretty women in Las Vegas right now instead of praying at the alter of the Church of the Everlasting Despicalbleness. You could join us.

Hay


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RE: Yet another OP on commodity speculation

Are we talking about different markets? Brent Crude futures do indeed have delivery, or cash settlement.

Here is a link that might be useful: link


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RE: Yet another OP on commodity speculation

"The Brent crude future is a cash-settled contract."

That seems pretty clear to me.

But, if two parties want and agree, they can together go to the exchange and, in effect, say that, between the two of them, both agreeing, they will settle with an actual delivery of oil. Both parties must agree to that.

"Exchange of futures for physical (EFP), Exchange of futures for swap (EFS) and Block Trades are available for this contract."

EFP Explained.

" ICE Brent Crude Futures EFP

The Exchange of Futures for Physical (EFP) is an alternative mechanism that is used to price physical crude oil. This enables participants to exchange their futures positions for a physical position thus separating the pricing from the physical supply."

There's really no need to go with this. The real point I wanted to make is that you have an oil market in which, except for isolated cases arranged between two agreeing parties, for all practical purposes, is a cash settled market. A bet, pure and simple, on the price of crude in the cash market on the last day of trading for that contract. You certainly could have a futures market with only a cash settlement.

That is basically what the bet on Obama winning on Intrade is all about. A bet, pure and simple. No different than buying a future on the weather on the Weather futures market. You want to bet that it's going to be rainy in the month of July in Kansas? Buy the rain future. You get a settlement price based on how much rain actually falls. Just because you "bought" the rain doesn't mean that someone is going to be driving up to your farm with tankers full of water.

You want to make a bet with me and Marshall on the price of gasoline at the pump down at the corner next month? We'll see how it affects the price.

Hay


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RE: Yet another OP on commodity speculation

At the link is a lengthy paper by the Institute for Agriculture and Trade Policy on the subject - unfortunately, its a .pdf and difficult to copy and paste but anyway.

Two excerpts:

The work of the Institute for Agriculture and Trade Policy on commodity market price volatility and regulation began in the spring of 2008. Farmers asked IATP why their local elevators- and even agribusiness firms such as Cargill -were the extreme price no longer offering forward contracts on the farmers’ grain and oilseed production, and why rural bankers were not lending to the elevators to enable forward contracting.

In our initial attempts to respond, we discovered that orthodox agricultural economic explanations of futures and options market operations no longer sufficed. - snip -

and they go onto explain it. Just a small bit here:

"Index Speculators have bought more commodities futures contracts in the last five years than any other group of market participant. They are now the single most dominant force in the commodities futures markets. And most impor- tantly, their buying and trading has nothing to do with the supply and demand fundamentals of any single commodity. They pour money into commodities futures to diversify their portfolios, hedge against inflation or bet against the dollar.

The four largest commodity swaps dealers - Goldman Sachs, Morgan Stanley, J.P. Morgan and Barclays Bank -are reported to control 70 percent of the commodity index swaps positions. Recently released Commodities Futures Trading Commission (CFTC) data from the House Energy Committee shows that swaps dealers have grown to become the largest holders of NYMEX WTI crude oil futures contracts. Chart 3 shows that, as their positions have grown in size, so has the price of oil.

Congress can put an end to excessive speculation by simply re-establishing meaningful speculative position limits that apply on all exchanges trading U.S.-based commodity futures contracts. These speculative position limits also need to be applied to transactions in the over-the-counter swaps market, since that market is now 9 times bigger than the futures exchanges. snip

end quote

I know its too long to ask everyone to read, but here we have the organization that represents food producers and 'normal' commodity traders explaining why we need to return to the limits prior to the vast market deregulation that has taken place.

and they quote this thought as well, following the food riots in 30 different countries in 2008, based on these 4-5 fold price increases:

Indeed, despite major efforts to re-regulate financial and commodity markets, the outlook for the enforcement of the Dodd-Frank Act is not good. The Republican Party majority in the House of Representatives has proposed slashing the CFTC budget to the point where Commissioner Mike Dunn said, “Essentially there will be no cop on the beat.” The next stage in the fight against excessive and purely financial speculation in commodity markets is perhaps the most important. Rules based on analysis of comprehensive trade data and sound legal reasoning to make markets fair are prerequisite to good enforcement that can manage the price volatility that results from supply, demand and other fundamental factors.

Furthermore, the alternative to comprehensive regulatory reform, both in the U.S. and internationally, is truly grim. As former National Director of Intelligence Dennis Blair told a stunned U.S. Senate Select Committee on Intelligence on February 12, 2009, the global economic crisis, triggered by financial and commodity market deregulation, has replaced Al-Qaeda as the number one U.S. national security threat. Blair’s intelligence agencies forecast widespread regime destabilization if the economic crisis continued to fester without major policy and political reform within two years. His agencies did not specify what reforms were needed nor advocate for their enforcement. That is up to us [the IATP].

Here is a link that might be useful: link


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RE: Yet another OP on commodity speculation

Thank you, David. I remember that paper and the demand by commodity producers from protection from Congress. Lot of good that was. And I remember the stir that security chiefs made when food sufficiency and climate change were considered by the professionals to be more of a threat to national security than al Qaeda and drug lords.

The situation has become more dire as the commodities businesses have lost control over spot pricing as well as longer term pricing to hedge funders and the too-big-to-fail investment giants David has been citing.


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RE: Yet another OP on commodity speculation

When all else fails, same ole, same ole.

Big numbers and another economic idiot.

Praise the Lord.

Amen.

Just like Krugman says, usually the same ole begins with the big numbers argument. Totally irrelevant as long as Maggie can't show us the pictures. Then introduce some economic idiot's testimony before Congress. Usually followed up with dire descriptions of the consequences of famine and high prices in the world. Tie it all together with an apriori assumption that "speculation", in some unknown manner, causes this suffering and you end up with another day in the life of a member of the Church of the Everlasting Despicableness.

Can I get an Amen from my brother, Marshall!!.

Hallelujah.

Hay


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Feast and Famine

Feast and Famine are a part of all life.

Yesterday, today and tomorrow.

Hay


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RE: Yet another OP on commodity speculation

But HALLELUJAH!, a few capitalists have the tools and the will to orchestrate Feast or Famine in order to elevate investors' "value". Amen, Brother Hay-full.


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RE: Yet another OP on commodity speculation

Thank you, david.


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RE: Yet another OP on commodity speculation

Isn't haymakers argument basically the same as a climate change denier? Oh sure. people get rich from manipulating the price of food causing starvation for others but hey there has always been famine, the Bible tells me so, Halitosis.


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RE: Yet another OP on commodity speculation

LOL, Ink. Hay's Church of Halirious Halitosis.


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RE: Yet another OP on commodity speculation

I read these threads because I know nothing about these issues and want to try to learn as best I can.

I must confess, Hay makes it very entertaining! Really, I do enjoy his little quips and end up laughing before the thread is through.

Tell me the truth Hay - are all the women you surround yourself with and go dancing with on your Saturday nights REALLY all that lovely?

All of them? .....If so, why then you must be Clive Owen/George Clooney hiding behind a Hay stack!

....or maybe, perhaps, are you the type who can find a certain beauty in all women - even in the woof - woofs? ;)


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RE: Yet another OP on commodity speculation

Thanks, hay for answering as I would have about gas prices. Gas prices in the US have never been high. It'smuch more expensive in Canada and the UK than it is in the US. Gas is a global commodity...why look at prices in only one location?


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RE: Yet another OP on commodity speculation

"or maybe, perhaps, are you the type who can find a certain beauty in all women"

Yes, indeed, with a few notable exceptions, they're all beautiful in their own special way.

It's not just on Saturday nights either. Here lately I've had to cut back to just five nights a week. The high cost of gasoline is cutting into my love life. Bring on idiotic regulations and the price of gasoline will go up even more.
That's the worst part of it.

Hay


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RE: Yet another OP on commodity speculation

"Obama plans to spell out his $52 million proposal Tuesday at the White House, where he will be joined by Attorney General Eric Holder."

Another $52 million of your good tax money spent to bolster Obama's election campaign.

"They would not go as far as to say that market manipulation is responsible for rising gas prices, but the officials said they wanted to curtail the ability of speculators to take unlawful advantage of oil price volatility."

Translation: There are idiots out there that believe that the markets are being manipulated. They vote.

"Under pressure to take action on rising gasoline prices, President Barack Obama..."

Translation: The voting fools want something. Anything. This'll keep them happy til the next election.

"They would not go as far as to say that market manipulation is responsible for rising gas prices, but the officials said they wanted to curtail the ability of speculators to take unlawful advantage of oil price volatility."

That's right folks, there's no reason to think that market manipulation has anything at all to do with the rising gasoline prices, but, who cares? When all else fails, bring out the guillotines. The public loves guillotines. "unlawful advantage". They're doing no harm? They're not affecting the market? We'll just make up some more laws. The public demands a villain!!!

"Analysts say it is possible that such speculation has somewhat inflated the price of oil."

Analysts? Unnamed analysts? So far, the best analysis I've seen is from Marshall.

"At the same time, investors can also bet that prices will go down - indeed, speculators have been credited for low natural gas prices. Studies of the effects of speculation on oil markets indicate that it probably increases volatility, but doesn't have a major effect on average prices."

I think we may have an babbling idiot on our hands here. Probably, maybe, could possibly, but then again and might, but on the other hand. Therefore we need more regulations.

"Obama's plan this time calls on Congress to:

- Increase six-fold the surveillance and enforcement staff of the Commodity Futures Trading Commission to better deter oil market manipulation.

- Increase spending on technology to provide better oversight and surveillance of energy markets.

- Increase civil and criminal penalties against firms that engage in market manipulation from $1 million to $10 million.

- Give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets."

Just what we need. Hobble the oil industry even more. That's sure to bring down gasoline prices. Just remember, someone has to come up with this $52 million to pay for this nonsense. Who will that be? I'll give you a hint: not Obama.

The ultimate cost to you? Lots more than $52 million.

But you can't say he didn't do anything. That's what counts in an election year.

Hay


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Where we're headed....

Where are we headed with this kind of nonsense?

Today it's regulations. They won't work, (and in fact will make things worse.) so we'll have to take more drastic measures tomorrow.

More drastic measures that also won't work.

Pretty soon we're

Back in the U S S R.

Hay


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Why is INdia so backward?

I once spent a vacation in India.

The place is a polluted nightmare hellish hole.

Aside from standing on one corner and not be able to see the traffic lights one block down because of the pollution, the thing that stuck with me the most was how little got done in that country.

Talk to the people and you soon realize that doing anything, anything at all, like build a retail store, is impossible because of the government bureaucratic mess that you have to go through. A bureaucratic mess that, in turn, has evolved into corruption and bribes to get anything done at all.

Nothing gets done.

That's where we're headed.

Hay


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