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CFTC prepares crackdown on speculators

  1. CFTC prepares crackdown on speculators

    Energy traders face limits on positions



    ---------------------------------------------------

    I called for this long ago. For those that questioned my wisdom.

    #$%@ u.
     
  2. 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...
     

  3. 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.
     
  4. 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.


     
  5. 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.
     
  6. 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.


     
  7. 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.
     
  8. 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.

     
  9. So there is a big argument here, fundys versus specs... what are the estimates for the percent of oil price extremes due to fundys versus speculators?
     
  10. Excuse me, but you are WRONG.

    The CFTC has nothing to do with the position limits on the energy futures that trade on the NYMEX. It is the exchange itself that sets the limits.

    The CFTC sets position limits on Agricultural futures contracts such as wheat, corn, and soybeans - - - not ENERGY futures.
     
  11. CFTC Chairman Gary Gensler said Tuesday the CFTC will hold hearings this summer to consider imposing position limits for "all commodities of finite supply." The agency will also review whether swap dealers, index traders and exchange-traded fund managers should be allowed to get around those limits through special hedge exemptions.



    Dear Leeches,

    your days are numbered. try learning a skill, like mugging little old ladies.
     
  12. Anyone read nutcase Jim Cramer's rant on this in today's RM? The guy really needs to take a long vacation. He made even less sense than some of the posters here, and that is saying a lot. He has been desperately trying to suck up to the Obama administration since his ritual humiliation courtesy of Jon Stewart. Guess this was part of it, but he is rapidly losing any credibility.

    Bottom line is, it is not easy to draw the line between investing, trading, speculation and manipulation. Everyone would agree that outright manipulation is wrong, eg false reporting of positions or phony trades. If I decide to buy a lot of spot crude and store it on a tanker and sell into the forward market though, what is wrong with that? If specs drive up futures prices, as Cramer seems to be trying to argue, there are only two possible outcomes. Either they liquidate or they take delivery. Each alternative will exert a downward force on prices, either now or in the future. Guys like Cramer can't seem to grasp this aspect of futures, maybe because they are stock traders and don't understand the zero sum nature of futures.
     
  13. There is the political world....

    There is the media world....

    There is the REAL world.....


    .........................................................

    Cramer lives in the media world....

    Not the REAL world....

    Mr. Nielson
     
  14. Let me take a wild guess. You voted for Dubya 3 times.

    The fog of retardation is readily apparent.

    Apparently the fog is thick enough to where you fail to comprehend the difference between malicious speculation and normal market hedging by producers and end users.

    According to your half witted theory, GS should be able to buy the entire Sorghum production of Mali, hoard the harvest creating a artificial food shortage and driving up prices, lock in future contracts at exorbitant prices and then once the contracts are in place,go short and flood the market.

    There is a reason some countries have the death penalty for food hoarders. We should apply the same medicine here and with people like you.

    You imbeciles confuse efficient markets with inefficient market manipulation.

    According to your foggy retarded brain, the Hunts should also have been able to savage the silver markets a decade ago.





     
  15. Actually, its people like you that don't trade for a living or have even the slightest clue about how commercials and specs are "classified" by the CFTC that lends itself to ZERO credibility.

    HINT: The CFTC classifies large investment banks and other swap dealers as "commercials" - - - the same category it uses for more traditional investors in the physical oil market such as oil companies and airlines.

    You would think that the guy with over 10,800 posts on Elitetrader which actually trade for a living and have some BASIC KNOWLEDGE of how the futures markets work and how the CFTC classifies the participants and what kind of advantages those participants have over each other . . . but "AAA" continues to show everyone just how uninformed he really is.

    And people actually wonder why the content on ET has gone down the tubes the last several years.

    Go figure.
     
  16. Well now....

    GS, MS....the last big take to 147.....and word is....the take is big on the last double....coupled with the self fulfilling high price call....

    Next on the list.....Cap and Trade....


    Look.....I hope GS, MS and the rest flood the trading highway with names to trade.....especially the developing, rising players with the brightest futures....ie China,etc,....

    But finite commodity price hassles namely food and fuel are a different issue....

    GS, MS and the rest.... need some fresh new blood to take....
    Personally I hope they turn every decent private business on the planet into CS to supply the new worldwide SE....especially China's....
     
  17. If you actually understood the "Cap & Trade" legislation that recently passed the House and is heading to the Senate, you would know that 80% of the pollution credits are being given out for FREE by the Government, and not auctioned off as they would ideally be if the legislation wasn't so
    "watered-down".

    Why and how did it get so "watered-down"?

    Corporate America had already (long ago) figured out whose vote to "buy" . . . hence the "water" job.

    Lots of ideals.
    But "business" as usual.
    Might not even make it out of the Senate.
     
  18. ................................................................

    Just to clarify....

    Will be another class of secs to trade....

    Created by the stroke of a govt. pen....

    Will take a while.....but could be of some significance....

    MS GS others should/do....keep their people on top and ears to the ground for another prospect.....

    Just another trading item....

    Something is going to happen....

    By the way....were cellular rights not free at the beginning....?
     
  19. You are the kind of clueless idiot who probably thinks rent control is a valid way to deal with housing shortages. Ever notice which countries tend to have the death penalty for hoarding? Basket cases run by the sort of socialist fools we now have in charge. No doubt obama and his buddies will mount some sort of demagogic war on evil speculators here to distract voters from their miserable failures.

    The logic of your position is that the govenrment shosuld impose price controls on the necessities of life. Otherwise, evil speculators and hoarders might drive the price to an "unfair" level. We tried that in the '70s and we got gasoline rationing, lines around the blcok and a moronic national 55MPH speed limit. This time I'm sure it will be even worse, as obama controls the national media and is supported by an army of ignoramuses like you.
     
  20. I'm pretty much with Landis here. No reason investment banks should be considered "commercials," let alone ETF's. The swaps loophole needs to be eliminated.

    This move in crude was coming anyway. It may be exacerbated by the regulatory news, but we're at the top of the year, gasoline had already turned over, over-played fears of an inflation crisis have faded (inflation would take more time to develop), and the normal rebound from the winter lows after the plunge from pre-Lehman days has happened.

    I fail to see anything abnormal about these moves. A rebound after a huge drop -- nothing special here, esp considering the contango, itself partly a view on longer term supply/demand issues. Commodities leading a perceived economic recovery -- normal. In fact the mood was that rising oil was good because it showed evidence of economic activity. It might end up being that commodities rise with BRIC shares rather than ours, btw.

    The biggest problem however is that there won't be enough oil produced for a real economic expansion. That's the real story, or at least the real threat.

    The big question not asked:

    Why didn't the multi-year rally into 2008 bring out more supply? Or more discoveries?

    If you were an oil producer who made oil for $30/barrel, would you really hold back the flow when oil was over $100?


    That said oil as an inflation hedge is problematic. The herd thinks monetary/credit inflation is coming, so they buy oil, pushing up oil prices, thereby causing higher prices for most goods. Talk about self-defeating... A kind of "tragedy of the commons" even if the "reflexive" rise is temporary.

    Also, since ETF's are concentrated in the front month they don't do much for real hedgers...
     
  21. Actually it was the peaking of US oil production in the early 70's that gave previously unknown pricing power to the oil exporting countries who formed OPEC.

    Anyway the Obama administration isn't talking about shutting down the futures markets. Obama's a capitalist too. Government is FORCED to take an increased role in the economy after a credit collapse. Otherwise it's Hooverville time.

    The Republicans did more to increase oil prices by giving lavish subsidies to buyers of gas hogging SUV's as a back-door protectionist measure for the US auto industry. SUV's caused a 20% increase in American gasoline demand.

    REAL long lasting "manipulation" comes in the form of cartels, wars, gas subsidies and so on.
     
  22. One other point is that manipulation always produces very good trading opportunities. If people are complaining that oil is ridiculously high at $140+, why not short it and make an enormous profit off the stupidity of others? As a trader, I would much rather have less regulations than more.
     
  23. Actually, the only real ignoramus on this thread is YOU. You obviously had zero clue that investment banks have been classified as "commercials" by the CFTC in the energy markets.

    Thanks for stopping by my friend.
    Maybe you should stay inside the "Politics & Religion" forum and not venture out . . . that way, you might not look as ignorant as you really are.

    :p
     
  24. Exactly. Oil and gas producers were selling production forward big time and drilling like there was no tomorrow. Of course, Obama and low pricers stopped that drilling and we will be seeing the effects soon. Gas wells, particularly in shales, tend to trail off pretty severely after a year or so.
     
  25. If you Hatfields and McCoys continue to bring politics into this and turn it into a flame war, I'll toss this thread into the political forum cesspool where it belongs.
     
  26. And yet oil production failed to increase. Most oil producers are in decline. New wells aren't big enough. Production seems to be peaking.
     
  27. Once again, you show that you have no idea what you are talking about.

    Gas production in the shales such as the Marcellus, Bakken, Barnett, and Haynesville is dramatically higher given the newer drilling technologies (horizontal drilling) that are currently being used.

    Helmrich Payne (HP) is one of the biggest in the business given their fleet of "Flex-Rigs" which first came into the gas fields in the late 1990s.

    They are so much more efficient and productive that fewer rigs are needed to accomplish the same production task. In some studies, horizontal drilling is shown to be TWICE as productive as normal vertical rigs. In the Barnett Shale, horizontally drilled wells in 2008 were shown to be THREE times as more productive than the average 2006 US land gas well.

    http://drillingcontractor.org/index/index.php?option=com_content&task=view&id=479&Itemid=1


    http://www.hpinc.com/
     
  28. Agriculture futures have relatively small position limits for speculators and are strictly enforced. Of course hedgers are allowed to trade much bigger but only on a petitioned as needed agreement. Some of you may remember in the late 80's when Ferruzzi, a large Italian commercial attempted a Soybean corner under the perusal of excessive hedging. The CBOT placed a forced liquidation order and in the aftermath Ferruzzi blew out!

    Yet even with such limits and oversight: I can think of a half dozen markets that had 5-1 gains over the same period as crude. And as we all know, the rise in commodities when priced in foreign currencies was much, much less extreme than in dollars. In fact a 5 year oil chart is virtually 100% correlated to the Brazilian Real.

    Given the sheer size of the market-and the ax of the Gulf states-I'm completely dismissive that oil was unduly squeezed. OF COURSE there were huge speculative longs. But that's the nature of the beast. Were those longs able to "corner" nearby oil like you could in winter wheat? Give me a friggin' break. Ask Amaranth what happens when you risk going 1 on 1 in the open interest with an equally financed yet better skilled trader. Most squeezers ultimately get squeezed.
     
  29. :D
     
  30. Please point out where I posted the gubment should actively control prices?

    Your inability to comprehend basic logic is par for the course for someone who is an active enabler for dubyas culture of malfeasance.

    are you suggesting that the gubment has no say on how the markets should operate?

    If that's the case I should open a broker dealer and front run my clients order flow.

    On another note. Are you demented, or do you just suffer from dementia?




     
  31. Gee, as soon as they heard they could not CORNER the market, the oil price fell like a fat lady on an icy street.


    No, there's no manipulation......
     
  32. do I hear $57 a coming for "black gold "?

    sheesh ... will some buyers come in ?

    I need my silver and corn to rally

    :p
     
  33. I remember well the 1970s, the petroleum distributor
    I worked for had to go to the state set-aside program for more
    product. You had to "upward certify " to the EPA also.

    I do not think we want to return to those days.

    Price will regulate demand.
     


  34. -- Market was already falling before any CFTC talk.

    -- Baltic Dry Index (shipping rates) is down hard too after rallying in sync with oil. Can't blame it on speculators b/c none are allowed there! Indeed it is far more volatile than oil, probably because immediate supply and demand push it around wildly without specs to cushion things.
    http://www.wikinvest.com/index/Baltic_Dry_Index_-_BDI_(BALDRY)/WikiChart

    -- Overblown inflation fears have subsided for now -- gold, interest rates, stocks all showing the same thing. Reflation trade over. Deflation fears may have resumed. Employment report was the first catalyst and synched with seasonality of oil/end of the driving season.

    -- We're in a phase where commodities and stocks tend to move together.

    I'm not saying "speculators" can't move prices, esp larger investment flows, just that this correction is normal. Remember that speculators are shorting this market too. Over time speculators reduce volatility, unless perhaps a boom/bust cycle comes into effect.

    Nice if they got rid of commodity ETF's though. A question: is there an uptick rule on USO? That would be ridiculous. Oil shouldn't be traded like it's a stock.

    Shipping rates are devoid of speculators. So why were they up into 2008 even more than oil or other physical commodities?

    I think you need to take a trip to China and see all those brand new bustling cities that make US metro areas look like quaint villages. Then maybe you'll have some clue as to why there's been volatility in resource prices.
     
  35. look ... here is my opinion on this

    somehow whether though OPEC or "big money" wishful thinking

    we got ourselves up to the low $70's a short time ago

    but this selling has been overdone

    sure we might be headed to $50 - $55

    but I tell you folks ... be careful what you wish for

    those who blame spec's for the volatility in oil

    had better start investigating the movements in everthing
    else when and if the happen

    and furthermore ... I hope you shorts ( and stupid quant based

    BOTS running OPM using leverage to kill others ... )

    don't you realize that if everthing goes to ZERO

    you will have made alot of money but we will be in such

    a deep pile of doo doo your other assets will go to ZERO

    and you will find yourself looking for "butts" in the garbage can
    like everyone else

    :eek:
     
  36. Just a couple of notes:

    The USO ETF changed their prospectus to include OTC products into their inventory management policy. Smart on their part - size is done OTC with blocks (Just look at the ICE and ClearPort block trade volumes).

    Somehow I am apathetic to all of this political hot air and posturing. Do any of you believe this will affect size intraday speculators? I'm curious. For example, on Friday I had 2000 buys and 2000 sells on Nymex but carried a smallish butterfly over the weekend (50x100x50). Let me know what you think.
     
  37. You do realize you're dealing with individuals who believe in Ayn Rands Utopian garbage.

    The fact that Greenspan was one of her disciples was a big red flag on his abilities ( and his sanity )


     
  38. New Federal Reserve Research gleaned from my weekend reading:

    Does Speculation Affect Spot Price Levels? The Case of Metals with and without Futures Markets

    http://www.federalreserve.gov/pubs/feds/2009/200929/200929abs.html


    "Abstract: This paper finds no evidence that speculative activity in futures markets for industrial metals caused higher spot prices in recent years. The empirical analysis focuses on industrial metals with and without futures contracts and is organized around two key themes. First, I show that the comovement between metals with and without futures contracts has not weakened in recent years as speculative activity has risen. Specifically, the annual and quarterly price growth rates of the two metal categories have been positively correlated with their growth rates experiencing a structural shift by the end of 2002. This comovement is driven by economic fundamentals because world GDP growth is strongly correlated with metal price growth, especially after 2002. The structural change in 2002 is also consistent with supply and demand information found in industry newsletters. In the second set of results, I focus more directly on financial speculation and spot price inflation. I use the S&P Goldman-Sachs Commodity Index returns to proxy for the volume of speculative activity and I show that these returns are unrelated to metal prices. The final test follows storage models, which suggest that speculation can affect spot markets only if it leads to physical hoarding. Focusing on metals with established futures markets, I find no evidence of physical hoarding because inventory growth is found to be negatively correlated with price growth rates."
     

  39. This is an accurate quote, but it also leaves out one key issue - the same one the the media, public and Gov. morons who cry for market limits miss . . .

    Futures contracts/options DO NOT EXIST unless there is an agreement between a buyer and a seller. There is no "float" like on stocks or physicals that can be hoarded or bought up. There can be a theoretically unlimited amount of them, they are not "issued". They are a true reflection of supply/demand.

    Therefore, for every speculator that is going long oil, there is either a hedger or a shorter selling it at that same moment. Or another spec or hedge long that thinks oil can't go higher closing out their position.

    For every speculative short-seller or hedger, there is a speculator or investor or even a reverse-hedger going long. Or a short that thinks it can't go lower, so they are buying back.

    So it is absurd to say that speculators falsely move the markets, they only help to make the markets by taking the other side of the trades - at the prices that the big companies hedging need to move a bunch of contracts one way or another. They provide needed liquidity. You can't just have all the big, non-spec hedging entities with no one to take their trades.

    Without speculators to reduce the volatility in the market, it would be constantly going limit up or limit down violently due to big hedgers all heading for the same side of the trade at the same time.

    Therefore, the idea that curbing speculators would create a more orderly market or act as price control is just plain ignorant of how these markets work.

    ---------------------------------------

    And what all this nonsense really is (in my opinion) is that the NoBam admin. wants to try and control oil & nat. gas prices by forcing downward pressure on the markets, so they can avoid criticism of all of their expensive, inefficient, porkulus, mandated green b.s. and not be blamed for driving up prices by restricting drilling, etc.

    They have done such a shitty job on all the other areas so far - housing, jobs, spending - that if oil prices rise too high, that could cost them much of their public support and will really piss off the American people.

    After all, supposedly if you use less oil due to being all solar and light rail and electric car, oil should go down, right? But if it is higher come the next election, they are screwed.

    After all, it was largely the pain from high gas prices and Bush being blamed for it by the Dems that got our little community organizer elected. And why the Repubs lost control.