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“A financial crisis and recession this year have pulled off what U.S.lawmakers couldn’t: popping what many believe was a speculative bubble in oil prices.
But a collapse from highs above $145 a barrel into the $30 range doesn’t mean Congress is washing its hands of the issue.Instead, many lawmakers are emboldened, seeing both the crude-price collapse and the systemic failure of the credit-derivatives market as reason to push ahead with rules to prevent what they call “excessive speculation” in commodity markets – cialis buy on line….
A consensus has emerged that at least part of the reason for oil’s plunge stems from unprecedented financial-market strains that forced speculative investors to dump assets and raise cash.” Click for ARTICLE (subscription required)
- As Oil Sinks cialis buy on line, U.S.Officials Plan to Fight Speculation
- Gregory Meyer & Ian Talley
- Wall Street Journal
- December 22, 2008
Since the oil bubble has popped more and more people are acknowledging what has been said for a long time now: we had our first ever bubble in commodities. Mike Masters and others said on June 23rd at the House Energy Hearing that crude oil prices could be cut in half if Congress would pass legislation to limit the participation of speculators in the commodities markets. The headline the next day was “$2 Gas Possible …” Large numbers of people said he was crazy cialis buy on line, but a few days ago I saw gas for $1.35 a gallon.
Even though Congress did not act the bubble popped because the speculators themselves decided to flee the markets. The fact that many of them blew themselves up in 2008 because of their insanely leveraged bets certainly helped to flush them out of the markets.
Thankfully some in Congress still recognize the pressing need for action. Wouldn’t it be great if for once Congress acted and didn’t wait for another crisis. The only reason a bubble was possible is because the CFTC and Congress, at the behest of Wall Street, effectively eliminated speculative position limits and exempted the over the counter markets from all regulation (including limits). With no limits on them the speculators were able to take over the commodity markets and convert them into capital markets thereby making it possible to have a bubble. In fact it is still possible to have another bubble in commodities.
Until Congress takes action to re-establish speculative position limits for all speculators across all markets the commodities markets are completely unprotected against the next bubble forming.
As mentioned in previous posts, Wall Street is still banking on their ability to trade commodities as their ticket to profitability in 2009. Their attitude is typified by this quote that appeared in the article:
“The anti-speculation talk may have subsided in the market slide, but its ugly head is likely to rise again,” said Greg Mocek, a former head of enforcement at the Commodity Futures Trading Commission, now a partner at law firm McDermott Will & Emery in Washington.
Mocek was supposed to be the cop on the beat policing Wall Street. A few short months later we are told he is working for a law firm representing ISDA (International Swaps and Derivatives Association). What does it tell you when the cop on the beat in 2008 is now jumping ship to Wall Street and he is characterizing people that want to limit speculation as “ugly?” It tells me that the regulators were very tight with those being regulated. In fact there were many instances in 2008 when you would listen to a comment and you couldn’t tell if it was coming from a Wall Street CEO or someone within the CFTC.
Thankfully you have people at the CFTC like Commissioner Bart Chilton who recognize the problem and are actively working to fix it. Here is what he said in the article:
“Even if speculators only had a small impact [on price], that’s not right.Our job is to guard against fraud and abuse, – cialis buy on line…Congress should act expeditiously to prevent the type of excessive speculation and leveraging we have seen.”
Commissioner Chilton also recently gave a great SPEECH proclaiming “we could have done better.” I hope that many more within the CFTC will follow the leadership and example of Commissioner Chilton – cialis buy on line.
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Excellent read: Driving On Ice
Notable quote:
“We could have done better.
We could have been aggressive advocates for closing dark energy markets-particularly after we witnessed how consumers were impacted by the activity in the natural gas markets in 2006.
We could have given exchanges timely guidance on governance rules that we promised in the first quarter of this year.
We could have been quicker to see the problems of look-alike contracts traded on domestic and foreign exchanges-the Enron and London Loopholes-if you will.
We could have done more and reacted better in looking at silver and gold trading.
We also could have done better by looking at the role of new speculators-particularly non-traditional buying cialis online, non-commercial long traders-in the commodity markets.With gas prices over $4 a gallon this past summer, the CFTC’s position that the markets were operating appropriately strained credibility, at best.
We could have dealt better in handling with the issue of market prices vis-à-vis swaps dealers.
We could have conducted the interagency task force looking at oil trading in a different fashion-perhaps one that didn’t invite an Inspector General’s investigation.” – buying cialis online
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“J.P – cheep daily cialis. Cheep daily cialis: morgan Chase & Co., moving to bulk up its relatively young commodities franchise at a time when rivals are scaling back, agreed to buy the Canadian energy operations and global agricultural business of Swiss bank UBS AG….
Cheep daily cialis: for J.P.Morgan cheep daily cialis, the acquisition reflects its latest move to pounce at a time when many of its competitors are struggling.Amid this year’s wild swings of oil and food prices cheep daily cialis, many financial institutions now see potential growth in the commodity space, as a result of increased client demand for risk management against price moves and commodity-related financing.” Click for ARTICLE (subscription required)
- J.P.Morgan to Buy UBS Commodities Unit
- Carolyn Cui & Robin Sidel
- Wall Street Journal
- December 23 cheep daily cialis, 2008
If you thought the fact that the commodities bubble had popped meant that the problem was solved, think again. J.P.Morgan would not be expanding their commodities business if they were going to stop trying to sell the myth that commodities are an “asset class.” Wall Street is actually ramping up to push commodities in 2009 as an “inflation hedge.” We have heard of initiatives at several large Wall Street Banks to get commodity salespeople out pounding down doors pitching commodities as a great buy.
The pitch goes like this: (1) if you liked oil at $70 per barrel you’ve got to love it at $39 per barrel. (2) because Wall Street blew themselves up (and Main Street with them) the Fed will be printing money so you’ve got to own commodities as an inflation hedge.
By encouraging money to pour back into commodities, Wall Street will cause food and energy prices to rise which will inflict pain on the entire world, but that does not appear to concern them whatsoever. Wall Street has rarely if ever stopped to consider what kind of havoc they were wreaking with financial innovation. We have spoken with people at these banks that tell us “yeah you’re probably right but if we don’t do it someone else will and we’ve got a duty to our shareholders (and ourselves) to make as much money as possible.”
When talking about the current credit crisis President Bush described it by saying “Wall Street got drunk!” I would take it a step further and say “Wall Street got absolutely smashed then got in their car and drove over some innocent bystanders.” Either way, it is important to understand that Wall Street’s strategy for getting over this head-splitting hangover is to make commodities their “Bloody Mary.” They are hoping that in 2009 they can exploit the last remaining opaque, unregulated, high-margin, high-volatility market that is available to them – commodities swaps – in order to recoup some of their huge losses from 2008.
Wall Street has been effectively thrown out of the CDS bar, but rather than giving up on their wild binging they will be heading down the street looking to re-enter commodity swaps with full force.
Every single one of us needs to be on guard for what is coming down the pike in 2009; cheep daily cialis.
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” Buy cialis without a perscription: before then, I thought maybe speculation has a role, but I wasn’t sure,” says Mesalles, 46, as he inspects the grain storage area behind his office in the San Jose suburb of Pavas in Costa Rica.”But there is no fundamental reason the market can be limit-down and then limit-up the same day.”
Like food producers everywhere from China to Cameroon, Mesalles has been forced to adjust his business plans as prices lurch from one extreme to another; buy cialis without a perscription.The corn futures he tracks climbed 43 percent between March 10 and June 27 before plummeting 53 percent in the next five months, to $3.74 on Dec.12.Price volatility for corn is at its highest since at least 1999, based on data compiled by Bloomberg, showing that more than supply and demand is at work, Mesalles says.
“The fact that prices soared and then they came down so much really does suggest that there was a speculative element to it,” said Jeffrey Sachs, director of the Earth Institute at Columbia University in New York and a special adviser to United Nations Secretary-General Ban Ki-moon, in an interview. Click for ARTICLE
- Corn Futures Spark Riots as Speculators Take Trading to Limit
- Ian Katz and Ari Levy
- Bloomberg
- December 15, 2008
Limit down and limit up in the same day! Amazing! Very good article worth taking the time to read – buy cialis without a perscription. Note that Jeffrey Sachs is a very well-known and well-respected economist (the youngest tenured economics professor at Harvard at age 29).
The article mentions that 75 million people have been driven into hunger because of the meteoric rise of food prices. And then within the same article you hear from people running funds that invest in food and denying that they have any responsibility or blame for what’s happening – buy cialis without a perscription. Typical.
If you’re one of these fund managers reading this please for the sake of the world realize that food is not an investment!; buy cialis without a perscription
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“Chinese oil consumption is much lower than in the U.S., and has never grown at more than 8 percent per annum; buy cialis without a prescription.To the middle of this year some firms vastly exaggerated China’s consumption growth, feeding speculation on oil prices,” he said.
Mechelany maintained the commodities bubble that burst earlier this year was an accident waiting to happen, and that it was fuelled by upbeat research reports and overactive trading desks. “The whole speculation in commodities has been driven by a few houses who have been trading their books at the same time,” said Mechelany.
“Some of them have made vast profits while the clients they were advising have racked up losses.You’d need to look at their books to see whether their trades were consistent with their research reports buy cialis without a prescription,” he said. Click for ARTICLE
- FUND VIEW-Hedge fund manager bets on continued crude slump
- Martin de Sa’Pinto
- Reuters
- December 5 2008
According to the article Jacques Mechelany has been short oil since July 2007 and then in July 2008, the Bank of China bought his asset management firm and it has been renamed Bank of China (Suisse). So given his Chinese connections, I find it very interesting to see him say that estimates of Chinese demand growth were ‘vastly exaggerated’ in order to profit the trading desks of the firms that were making those calls. (Remember Goldman had a $200 oil price target and Morgan Stanley had a $150 oil target).
Then he takes it a step further and says that at some point these same firms flipped their positions and were going one way (short) while their clients were going the other way (long). So while they’re encouraging their client’s to get long they’re taking the opportunity to get short. That kind of explains how Wall Street’s commodities desks could make such a huge amount of money in a year where commodities investors got slaughtered.
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“Harvard’s loss marks a sharp reversal from the endowment’s formerly chart-topping performance – approved cialis fda. Approved cialis fda: harvard and Yale University — which hasn’t disclosed its endowment’s recent performance — pioneered an investment approach that de-emphasized U.S.stocks and bonds and placed large sums in more exotic and illiquid investments, including timberland, real estate and private-equity funds – approved cialis fda. Approved cialis fda: that strategy, which was widely copied, helped the schools avoid significant losses after the technology boom ended in 2000….
Other investments, such as commodities, which were a boon to Harvard in past years, have turned negative in recent weeks.” Click for ARTICLE (subscription required)
- Harvard Hit by Loss as Crisis Spreads to Colleges
- John Hechinger and Craig Karmin
- Wall Street Journal
- December 4, 2008
The following slide from their website shows that Harvard has approximately 15% of its money in commodities, way more than most institutional investors. (Note that it’s not clear whether timberland is categorized as commodities or real estate or both).
Harvard was held up as an institution that all the other tax-exempt investors should emulate. The following chart shows they were ahead of the curve, buying into the “commodities as an asset class” nonsense in 2000. (Note the growth in “real assets.” Does that mean the other assets are not “real?”) Wall Street’s legion of commodity salespeople couldn’t help talking about Harvard and how smart they were and how much money they had made on commodities.
In the four months referenced by this article when Harvard lost 22+% of their portfolio’s value, the S&P GSCI Commodity Index plummeted 48% and the DJ-AIG Commodity Index dropped 43%. So yes equities were down 24% but the GSCI was down twice as much! Not only was the correlation positive but the beta was 2x! It looks like commodities are perhaps the worst performing “asset class” in Harvard’s portfolio.
Harvard, Yale and others are not looking so smart these days. Especially when you consider these institutions pride themselves on being “socially responsible” and yet they inadvertantly contributed to a doubling of food and energy prices that inflicted great pain upon the world community.
UPDATE: Yale reports that they are down 25% losing almost $6 billion. Click for ARTICLE.
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“Oil prices tumbled below $50 a barrel Monday as (the) National Bureau of Economic Research reported that the U.S; american cialis.economy has been in a recession since December 2007 and the Dow Jones industrial average fell nearly 700 points.” Click for ARTICLE
- Oil tumbles below $50 as recession called
- Mark Williams
- Associated Press
- December 1, 2008
I think the pronouncement that the U.S; american cialis.has been in an economic recession for the entirety of 2008 should mark the end of all the anti-bubble theorists. How can oil prices spike from $90 to $147 during a recession!? The all-knowing all-powerful markets are supposed to see into the future. What future were they discounting in July when oil prices were at $147 american cialis, yet the largest consumer of oil in the world had just spent it’s second quarter in recession!? I don’t know if there is a single person left, who is honest with themselves, that can say with a straight face “it’s all supply and demand.”
All bubbles eventually pop and perhaps the government should not attempt to pop internet-stock bubbles and other capital markets phenomenon BUT commodities markets are NOT capital markets. While the pets.com “investor” deserves what they get, every soul on the planet gets hurt when food and energy prices bubble and double. That is why we’ve had regulations in the past to protect our commodities markets from excessive speculation a.k.a.bubbles – american cialis. Those regulations are called speculative position limits and if the CFTC had not effectively eliminated them over the past 15 years then a bubble never could have formed.
But because of the CFTC and Congress (who for instance passed the Commodities Futures Modernization Act of 2000) we had commodity prices that defied gravity, defied a recession and defied logic!
The burning question is how much stronger would our economy be today if it was not forced to suffer a doubling of food and energy prices at the same time it was going through a recession?
Could the current credit crisis have been a category 3 instead of a category 5 storm if people were not forced to choose this summer between filling up their gas tanks and making their mortgage payments?
In a market protected from excessive speculation, commodity prices will normally come down along with economic activity, which cushions the economic blow. But instead of a cushion Wall Street delivered a 2″x4″ to the back of the head, right before it blew itself up – american cialis.
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“Reality did not meet these expectations because there was a big difference between the tonnage of copper actually going into furnaces and that being reported as global consumption.This is because material was being sold directly to financial institutions and others – thus being counted as consumption – with that material frequently being held off the market, so constituting a hidden stock. Buy cheap cialis online: these hidden stocks probably total around 1.5-2.0 million tonnes held in China and elsewhere in the world.
This development is nothing new in the annals of copper: it happened massively in the 1978-1980 bull market, resulting in hidden stocks (estimated at the time to have been about 1 million tonnes) being dribbled onto the market throughout the following decade; it was a decisive factor in the Sumitomo affair; and it occurred with the demise of Enron.Bull markets in copper invariably are associated with manipulation.What is so different this time was the sheer scale of the operation.” Click for ARTICLE
- Copper: what does the price fall portend?
- Simon Hunt
- Mineweb
- December 2 buy cheap cialis online, 2008
We have heard multiple times from people like Frank Veneroso and others that physical stocks of commodities have been hoarded by speculators in order to drive up prices. This article is another good one that points out that in the case of copper the price was steady to rising while the U.S.economy was in a recession (now official according to NBER) that was led by housing (the major consumer of copper).
The article also mentions the U.S.Attorney General’s speech in April which I remembered hearing about but had not read in full. It is worth reading (click HERE). The key quote was the following:
“Organized crime has put down deep roots in various parts of the globe – buy cheap cialis online.So-called “iron triangles” of corrupt business leaders, corrupt government officials, and organized criminals exert substantial influence over the economies of many countries; buy cheap cialis online. Buy cheap cialis online: this is a grave concern for U.S.law enforcement, and we have responded.
Buy cheap cialis online: one of the most well-known recent examples is the case of Semion Mogilevich – also known as the “Brainy Don”–and several members of his criminal organization who the United States charged in a 45-count racketeering indictment in 2003.According to published reports buy cheap cialis online, even after the indictment, Mogilevich continued to expand his criminal empire in a new direction.He was said to exert influence over large portions of the natural gas industry in parts of what used to be the Soviet Union.”
I am a little surprised that this was not a larger portion of the debate in Washington over the spike in commodity prices but we, for one, did not raise the issue because we felt the need to focus on the topic we could speak the most to: index speculation