CFTC clamps down on speculators

[TPS]

Speculators have controlled the futures (and therefore spot) markets for the past several years. Limiting their positions in futures markets is long overdue...

 

back to the futures markets

[Magox]

Speculators have controlled the futures (and therefore spot) markets for the past several years. Limiting their positions in futures markets is long overdue...

 

back to the futures markets

I'm a big believer in that markets will eventually correct themselves. There is little doubt that speculation was a part of the run up, but at the end of the day, these contracts are backed up by physical oil and that if taken into expiration they can and most of the time are delivered.

 

We live in a world where information is communicated at blinding speeds, and this process of information has helped create volatility not just in the futures markets, but in stocks and just about anything else that you can possibly imagine that could get traded. Volatility is part of the markets, even more so now than ever, and as technology improves the volatility will continue to rise.

 

If the fundamentals dictate a lower price, then eventually prices will go lower, same argument for the upside. I believe if you are willing to take a risk, and you are the one who is willing to put up margin on your 1000 barrel contract of oil at $147, then that is your prerogative. It doesn't matter how many barrels of oil you wish to buy, because at the end of the day, that price may go up or down and there will always be a winner and a loser on each side of the trade.

 

Many hedgefunds went under because they got greedy, they continously piled into oil, believing it would go to $200 a barrel, and many of those hedge funds who piled in are no longer here.

 

Market excesses, and severe corrections will lead to prudence amongst traders, and if it doesn't, then the life span of that trader or hedgefund is at risk, and that is just part of the game.

 

This possible regulation is just a scapegoat for the real underlying problem, which is the dollar, and either way, no matter what regulations they put in place, the price of oil WILL be back up above $100 in the next couple of years.

[John Adams]

This possible regulation is just a scapegoat for the real underlying problem, which is the dollar, and either way, no matter what regulations they put in place, the price of oil WILL be back up above $100 in the next couple of years.

 

The dollar issue is enormous. The willingness of the last two admins to let the dollar weaken makes my stomach churn. The pundit pounding this drum the hardest is Steve Forbes but he's hardly alone.

[TPS]

I'm a big believer in that markets will eventually correct themselves. There is little doubt that speculation was a part of the run up, but at the end of the day, these contracts are backed up by physical oil and that if taken into expiration they can and most of the time are delivered.

 

We live in a world where information is communicated at blinding speeds, and this process of information has helped create volatility not just in the futures markets, but in stocks and just about anything else that you can possibly imagine that could get traded. Volatility is part of the markets, even more so now than ever, and as technology improves the volatility will continue to rise.

 

If the fundamentals dictate a lower price, then eventually prices will go lower, same argument for the upside. I believe if you are willing to take a risk, and you are the one who is willing to put up margin on your 1000 barrel contract of oil at $147, then that is your prerogative. It doesn't matter how many barrels of oil you wish to buy, because at the end of the day, that price may go up or down and there will always be a winner and a loser on each side of the trade.

 

Many hedgefunds went under because they got greedy, they continously piled into oil, believing it would go to $200 a barrel, and many of those hedge funds who piled in are no longer here.

 

Market excesses, and severe corrections will lead to prudence amongst traders, and if it doesn't, then the life span of that trader or hedgefund is at risk, and that is just part of the game.

 

This possible regulation is just a scapegoat for the real underlying problem, which is the dollar, and either way, no matter what regulations they put in place, the price of oil WILL be back up above $100 in the next couple of years.

Contracts can be settled in cash without taking delivery or one can simply close a position by buying "the other side of the contract", which is why there can be more oil traded than what physically exists. In fact, the majority of commodity futures contracts are never delivered.

 

The futures (and other derivative) markets were created for hedgers, not speculators. The reason contract limits were put in place was to prevent the (easy) manipulation of prices by speculators. Having limits does not prevent market speculation, it prevents speculators from manipulating the market.

[Magox]

Contracts can be settled in cash without taking delivery or one can simply close a position by buying "the other side of the contract", which is why there can be more oil traded than what physically exists. In fact, the majority of commodity futures contracts are never delivered.

 

The futures (and other derivative) markets were created for hedgers, not speculators. The reason contract limits were put in place was to prevent the (easy) manipulation of prices by speculators. Having limits does not prevent market speculation, it prevents speculators from manipulating the market.

I don't disagree with what you say, it is just a matter of philosophy. Either way, the price will eventually move to where the fundamentals dictate. I believe that the price of anything is what people are willing to pay for it, and if you are willing to take a risk, no matter how big that risk is and you pay the market price for it, then so be it. You will either prosper or get burned from the decision you made.

 

As I alluded to earlier, the underlying problem is the US dollar, if we change our Dollar Policy, then speculators will not have as much motive to establish positions in Oil or for that matter commodities. But lets be real here, if you have a falling dollar, it only makes sense that you move away from paper to hard assets, and until that changes, we will still continue to have the same problem.

 

I will be willing to go out on a limb and still say that we will be facing the same $147 Oil problem, regardless of this new possible regulation at some point in the next few years.

[/dev/null]

I will be willing to go out on a limb and still say that we will be facing the same $147 Oil problem, regardless of this new possible regulation at some point in the next few years.

 

I was flipping thru the channels yesterday and CNBC was interviewing some guy who said oil would drop back into the $20s

[Magox]

I was flipping thru the channels yesterday and CNBC was interviewing some guy who said oil would drop back into the $20s

It may, nothing in the short term surprises me anymore. Almost the same way people pile into markets, they usually exit them at three times the speed. However, I will say this, I don't believe we will see $20 Oil, if we do, then God save us all! Cause that would mean that we havn't seen the peak of this financial armageddon that we have been experiencing.

[John Adams]

It may, nothing in the short term surprises me anymore. Almost the same way people pile into markets, they usually exit them at three times the speed. However, I will say this, I don't believe we will see $20 Oil, if we do, then God save us all! Cause that would mean that we havn't seen the peak of this financial armageddon that we have been experiencing.

 

I am not sure what you mean by "peak." There's more to come, although I'd say the precipitous fall seems to be over. Unemployment at 10% will probably be around for a long time. Weak dollar will remain. (Really, what is happening out there to strengthen it...the only reason it hasn't dropped off terribly is that it's better than most alternatives.)

 

Inflation might hold off for a while but it's bound to become a problem at some point. Interest rates have started to edge up and will likely continue to do so. And credit, while looser, will (hopefully) never be as loose as it was in the last decade.

 

Things are going to be painful for a while. I just hope the Dranish panickers have had their day. That was a frightening year.

[TPS]

I don't disagree with what you say, it is just a matter of philosophy. Either way, the price will eventually move to where the fundamentals dictate. I believe that the price of anything is what people are willing to pay for it, and if you are willing to take a risk, no matter how big that risk is and you pay the market price for it, then so be it. You will either prosper or get burned from the decision you made.

 

As I alluded to earlier, the underlying problem is the US dollar, if we change our Dollar Policy, then speculators will not have as much motive to establish positions in Oil or for that matter commodities. But lets be real here, if you have a falling dollar, it only makes sense that you move away from paper to hard assets, and until that changes, we will still continue to have the same problem.

 

I will be willing to go out on a limb and still say that we will be facing the same $147 Oil problem, regardless of this new possible regulation at some point in the next few years.

What is our "dollar policy"?

Also, if the $ is falling, one doesn't have to hold hard assets, one can simply hold paper assets in the currencies it is declining against.

 

Put a number on "the next few years," and I might take that bet.

[Magox]

I am not sure what you mean by "peak." There's more to come, although I'd say the precipitous fall seems to be over. Unemployment at 10% will probably be around for a long time. Weak dollar will remain. (Really, what is happening out there to strengthen it...the only reason it hasn't dropped off terribly is that it's better than most alternatives.)

 

Inflation might hold off for a while but it's bound to become a problem at some point. Interest rates have started to edge up and will likely continue to do so. And credit, while looser, will (hopefully) never be as loose as it was in the last decade.

 

Things are going to be painful for a while. I just hope the Dranish panickers have had their day. That was a frightening year.

When I mean "peak", I mean the rate of decline in property values, stocks, commodities and etc. Don't get me wrong, I believe unemployment will continue to climb and that property values have further room to go down, and that the SH*T storm in Commercial RE and Credit Card defaults still are ahead of us.

 

As Bill Gross says, we are all going to have to get used to the "New Normal", which is sluggish growth for quite some time.

[Magox]

What is our "dollar policy"?

Also, if the $ is falling, one doesn't have to hold hard assets, one can simply hold paper assets in the currencies it is declining against.

 

Put a number on "the next few years," and I might take that bet.

You know, spend spend spend, and when there isn't enough, borrow or print it, that one.

 

In regards to not having to hold hard assets; I didn't say it is the only game in town, but I can tell you this, Billy Joe Bob in Arkansas most likely won't come up with the idea to exchange his dollars for the Brazilian Real. In times of inflation, which I believe we will be seeing in the next few years, it makes a whole hell of a lot more sense to hold on to something tangible than a peice of paper with ink on it. Either way, the type of inflation that I believe we will be heading into, it doesn't matter what currency you hold, the rate of inflation will out pace the gains of any particular currency vs. the dollar.

 

If Gasoline, food, oil products were to go up 200% from where we are today and you exchange your dollars for let's say the S.A Rand, and the Rand gains 25% vs. the dollar, you still would have a negative rate of return on an inflation basis.

 

As far as putting a number to when we could see record high Oil prices, in my best guestimation, I would say summer of 2012.

 

Do you know the story of John Law? If you don't, it is a fascinating one that I think applies to what we are talking about.

[TPS]

You know, spend spend spend, and when there isn't enough, borrow or print it, that one.

 

In regards to not having to hold hard assets; I didn't say it is the only game in town, but I can tell you this, Billy Joe Bob in Arkansas most likely won't come up with the idea to exchange his dollars for the Brazilian Real. In times of inflation, which I believe we will be seeing in the next few years, it makes a whole hell of a lot more sense to hold on to something tangible than a peice of paper with ink on it. Either way, the type of inflation that I believe we will be heading into, it doesn't matter what currency you hold, the rate of inflation will out pace the gains of any particular currency vs. the dollar.

 

If Gasoline, food, oil products were to go up 200% from where we are today and you exchange your dollars for let's say the S.A Rand, and the Rand gains 25% vs. the dollar, you still would have a negative rate of return on an inflation basis.

 

As far as putting a number to when we could see record high Oil prices, in my best guestimation, I would say summer of 2012.

 

Do you know the story of John Law? If you don't, it is a fascinating one that I think applies to what we are talking about.

I didn't mean that you hold another currency, I meant that you invest in paper assets of those currencies--an emerging market mutual fund or foreign bond fund for example.

 

As for inflation, until the "money" that has been created gets into the hands of people who buy things, there is little to no risk of inflation. The only reason that commodity prices, especially oil, have gone up (until now) is because of people speculating that there will be inflation. Their bets are wrong.

 

Yes, Law's exploits were described in Kindleberger's book (manias, panics, and crashes).

[Magox]

I didn't mean that you hold another currency, I meant that you invest in paper assets of those currencies--an emerging market mutual fund or foreign bond fund for example.

 

As for inflation, until the "money" that has been created gets into the hands of people who buy things, there is little to no risk of inflation. The only reason that commodity prices, especially oil, have gone up (until now) is because of people speculating that there will be inflation. Their bets are wrong.

 

Yes, Law's exploits were described in Kindleberger's book (manias, panics, and crashes).

Their bets are wrong?

 

I disagree, I believe we will see major inflation, and I'm betting on it in a big way.

[TPS]

Their bets are wrong?

 

I disagree, I believe we will see major inflation, and I'm betting on it in a big way.

IMO, those who are making short/medium term bets in the futures markets are wrong; the fundamentals don't support $70 oil. I dont' see global demand rising sharply over the next two years, so I don't see oil rising by 200%. I'd take your bet, but as 2012 is the end of the Mayan calendar (and world), I won't be here to collect....

[John Adams]

Their bets are wrong?

 

I disagree, I believe we will see major inflation, and I'm betting on it in a big way.

 

I had mentioned it before but I sat in with the VP of [predicting long term trends or some sh--] at Vanguard in March/April. He stated just about what TPS said. His point was not that inflation wouldn't come eventually but that as long as most of the printed money was merely making it to the banks to offset their likely insolvency as property values fall/fell [he called this the M# supply corresponding to bank vaults], there would be little risk of inflation.

 

He added the caveat that as property values rose and banks became more solvent and started lending more, inflation would be a real concern. At this point, I don't see property values doing a lot of increasing, though the worst is probably over from the sharp descent.

 

Oil is probably undervalued. Not as confident in gold or silver. I don't follow many other commodities.

[Magox]

IMO, those who are making short/medium term bets in the futures markets are wrong; the fundamentals don't support $70 oil. I dont' see global demand rising sharply over the next two years, so I don't see oil rising by 200%. I'd take your bet, but as 2012 is the end of the Mayan calendar (and world), I won't be here to collect....

You are looking purely at a physical supply and demand picture and not taking into account the recent currency fluctuations. And it isn't just the currency fluctuations, but it is the anticipated demand that the market believes we will be encountering as well.

 

If you want to buy an investment that protects you from inflation, do you buy it when there is high inflation, or before it? I think most investors understand that if you create massive amounts of money out of thin air, that it is just a matter of time that inflation will occur, and I believe you are seeing investors preparing themselves for this. After all, that is the definition of inflation, when there is a large increase in prices as a result of a huge increase in the volume of money, which of course leads to currency devaluation. Isn't that what has been happening?

 

Take a look at this : http://futuresource.quote.com/charts/chart...p;b=bar&st=

 

I put a dollar and Crude chart together and you will see that they have a strong inverse relationship with one another. I don't find this to be coincidental.

[Magox]

I had mentioned it before but I sat in with the VP of [predicting long term trends or some sh--] at Vanguard in March/April. He stated just about what TPS said. His point was not that inflation wouldn't come eventually but that as long as most of the printed money was merely making it to the banks to offset their likely insolvency as property values fall/fell [he called this the M# supply corresponding to bank vaults], there would be little risk of inflation.

 

He added the caveat that as property values rose and banks became more solvent and started lending more, inflation would be a real concern. At this point, I don't see property values doing a lot of increasing, though the worst is probably over from the sharp descent.

 

Oil is probably undervalued. Not as confident in gold or silver. I don't follow many other commodities.

I agree JA, and I agree with TPS to a certain extent. I do believe that we have some serious deflationary pressures and headwinds in front of us that will persist for some time. It is hard to be in an inflationary environment when unemployment continues to rise and property values continue to fall. That is why I don't believe we will see significant inflation for a few more years, but that doesn't mean that inflation protected investments won't get bid up in the meantime.

 

Remember, in the 70's we had high inflation and slow growth, stagflation. It does happen, and I believe it will happen again.

 

My argument is Inflation through deflation. In other words, as a result of massive deflation, in which we are experiencing today, policy makers and central banks will fall to the political pressure of having to create excessively stimulative monetary policies to counteract the recession we face. Through these actions, which are 0 - .25% interest rates, printing money to buy MBS and treasuries and multiple stimulus package plans, not just here, but across the globe, that in my view it is inevitable that at some point in the not too too distant future, inflation will pose a serious risk to our economy.

 

I also am certain, that politicians, will not have the political will to do what it takes to reign in inflation. The reason why I say this, is that I believe that we will have very stagnant growth over the next few years, and it will be very difficult for politicians to take actions that will choke off growth, when we are economy is just muddling along, specially the politicians that are in charge now.

[TPS]

You are looking purely at a physical supply and demand picture and not taking into account the recent currency fluctuations. And it isn't just the currency fluctuations, but it is the anticipated demand that the market believes we will be encountering as well.

 

If you want to buy an investment that protects you from inflation, do you buy it when there is high inflation, or before it? I think most investors understand that if you create massive amounts of money out of thin air, that it is just a matter of time that inflation will occur, and I believe you are seeing investors preparing themselves for this. After all, that is the definition of inflation, when there is a large increase in prices as a result of a huge increase in the volume of money, which of course leads to currency devaluation. Isn't that what has been happening?

 

Take a look at this : http://futuresource.quote.com/charts/chart...p;b=bar&st=

 

I put a dollar and Crude chart together and you will see that they have a strong inverse relationship with one another. I don't find this to be coincidental.

As I mentioned, I am looking at the (relatively) near term that futures contracts cover, which of course is all about anticipation, hence the term...futures. I am saying their bets about the near term are wrong.

Inflation is a rise in the general level of prices. Your definition expresses the monetarists' belief that it's caused from the Fed printing too much money. This is wrong. While the Fed has "created" huge volumes of money, that money is not being circulated (as JA mentioned). The Fed can also destroy money, and will do so when the economy starts to recover.

 

Btw, one doesn't need money to buy something; one needs "credit." While money has been increasing, credit has been decreasing. Which one is more imortant for its impact on inflation?

 

If you look a bit further back you'll find that the dollar-oil relationship is fairly recent. In fact, it starts about the time that speculators took over the futures markets....

[Dwight Drane]

The Dranish Panickers..........makes a good name for my fantasy football team.

 

 

Since there is no real demand increase in many of the failed markets, and the banks were already allowed to mark up their inventory to unrealistic levels, how do we get out of this without the government printing and buying all the way up? The main damage is done.....control has been consolidated, assets have been spit up, and the laundering chain put in place. I think the whole world knows the playbook....it's just a matter of how long it takes for the game to play out.

 

For anyone that has been through a blizzard, or a hurricane.....you just try to survive the storm as it is happening. The next day you survey the damage and try to unclog critical infrastructure. We have made it through those steps. Problem is....you usually have to go through a period of time afterward where the power is out, nobody goes to work, and everyone just sort of hangs out with the radio on, eating tuna and drinking warm beer. We are just STARTING that process.

 

What happens if another hurricane hits as you are in limbo from the first?

 

Remember, the mechanics and psychology of inflation are not the same thing. When they work together it will be a disaster. I have said from the beginning this will end in war. I am glad things have held off, but this is all too much of a trainwreck to resolve itself. We are lucky China is patient at this point....although you can say they've been at economic war with us for decades and their patience will win the day without ever having to fire a live round.

 

The middle east on the other hand.........

[John Adams]

The Dranish Panickers..........makes a good name for my fantasy football team.

 

Your new name doesn't lend itself to FFL team names--you should change it back.