commodity

FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity Currencies

by on May 24, 2011

menafn.com…

FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity Currencies

Read more:
FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity Currencies

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Tagged as: , , , , , , , , ,

{ 0 comments }

Consumer prices could have rose in April on higher commodity prices…

by on May 13, 2011

menafn.com…

Consumer prices could have rose in April on higher commodity prices…

Link:
Consumer prices could have rose in April on higher commodity prices…

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Tagged as: , , , , ,

{ 0 comments }

Dems Blast ‘Wall Street Crude Oil Casino’

May 11, 2011

WASHINGTON — A cadre of top Democrats said Wednesday that heavy Wall Street speculation was driving up gas prices and blasted Republicans for pushing a new bill to delay any crackdown on such speculation until the end of 2012. “What we have now on Wall Street is a crude oil casino, and it has been opened and is now being protected by the Republicans,” said Rep. Ed Markey (D-Mass.) at a press conference that included Reps. Barney Frank (D-Mass.), Maxine Waters (D-Calif.), Joe Courtney (D-Conn.), Peter Welch (D-Vt.), Collin Peterson (D-N.D.) and Carolyn Maloney (D-N.Y.). According to the Commodity Futures Trading Commission, the regulator which oversees speculation in the oil and food markets, the number of of speculative bets on oil is currently at an all-time high , above even the extreme levels associated with the 2008 run-up in oil prices, when oil hit its highest price ever. All of that speculation has driven up the price of oil, according to many economists and an analyst at Goldman Sachs. Sean Cota of the Petroleum Marketers Association said at today’s press conference that a “bubble is underway” in the oil markets and that excessive speculation costs consumers and retailers $400 billion a year. Oil prices have risen sharply this year but have been increasingly volatile of late, plunging a full ten percent during a single trading session last week. “There used to be a debate about whether or not speculation contributed to the price of oil,” Frank said. “Now there’s a consensus.” “We know this is having an impact,” Peterson added, arguing Republicans “didn’t learn a darn thing from the financial collapse.” Last year’s financial reform bill requires the CFTC to impose new rules limiting excessive speculation in the oil and food markets, but the agency has been slow to act, and House Republicans are now pushing a new bill to delay those rules until the end of 2012. Sen. Bernie Sanders (I-Vt.) sent a letter to President Barack Obama in April, urging him to demand action from the CFTC. Obama has formed an Oil and Gas Fraud Working Group to scrutinize fraudulent behavior that may be driving up prices at the pump, but has not spoken out about regulating speculative bets that are currently legal. In addition to delaying rules on oil and gas trading, the House GOP bill would push back all of the derivatives reforms required by last year’s Wall Street overhaul and repeal some aspects of a 1999 law requiring traders to register with the CFTC and the SEC. Experts say heavy speculation becomes particularly dangerous when combined with “high-frequency trading,” automated processes that execute thousands of trades in less than a second. “It’s like the movie ‘Wall Street’ combined with ‘The Terminator,’ except it’s a horror movie for the American consumer,” Markey said, echoing concerns from CFTC Commissioner Bart Chilton. During a May 4 House Agriculture Committee Hearing, Rep. Mike Conaway (R-Texas) said there was no evidence that speculation affects commodity prices. Rep. Frank Lucas (R-Okla.), author of the new GOP bill, was not immediately available for comment. While Democrats target commodities speculation, Republicans blame pain at the pump on limited offshore drilling for oil and gas in the U.S. However, many experts claim expanded drilling operations simply will not lower gas prices . Rep. Maxine Waters (D-Calif.) also criticized Republicans during Wednesday’s press conference for attempting to repeal consumer protections included in last year’s Wall Street overhaul, part of separate legislation aimed at watering down the powers of the new Consumer Financial Protection Bureau. Some Democrats, including Frank, have backed an effort to delay another part of the Wall Street reform bill targeting the swipe fees that banks charge retailers for processing debit cards. UPDATE (2:19 p.m. EST) : As lawmakers were holding their press conference, the Chicago Mercantile Exchange, one of two major exchanges trading crude oil futures, halted trading in crude, gasoline and heating oil contracts after gasoline futures plummeted by 25 cents per gallon, CME spokesman Chris Grams told HuffPost.

Read the full article →

Video: Barratt Says Silver’s Fall Brings Market Into Question

May 6, 2011

May 6 (Bloomberg) — Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, talks about silver and crude oil prices. Silver futures headed for the steepest weekly decline since at least 1975 as an increase in margin requirements and slump in commodities from copper to oil prompted investors to sell precious metals. Barratt speaks with Rishaad Salamat on Bloomberg Televisions “On the Move Asia.” (Source: Bloomberg)

Read the full article →

Treasury Blocks Regulation Of Market That Sparked $5.4 Trillion Fed Bailout

April 29, 2011

The Treasury Department plans to exempt foreign exchange derivatives from new Wall Street reform regulations, a Treasury official said Friday, dismissing concerns about a market that prompted $5.4 trillion of emergency support from the Federal Reserve in late 2008. Assistant Secretary for Financial Markets Mary Miller told reporters on Friday that the foreign exchange market already functions effectively and would not benefit from new rules. Subjecting the market to new rules, she claimed, would introduce a new and unnecessary “process” into “a very well-functioning market.” But a 2009 study by Naohiko Baba and Frank Packer of the Bank for International Settlements concluded that there were major “dislocations” in the foreign exchange market in the aftermath of the Lehman Brothers bankruptcy — problems that were only resolved after the Fed pumped money into foreign central banks in order to ensure that global banks had access to dollars. “After the bankruptcy of Lehman Brothers, the turmoil in many markets became much more pronounced,” wrote Baba and Packer. “In FX and money markets, what had principally been a dollar liquidity problem for European financial institutions deepened into a phenomenon of global dollar shortage.” Last year’s Wall Street reform bill required derivatives to be centrally cleared, a safety measure which helps ensure that the overall market does not falter if a bank or hedge fund cannot make good on its trade. But the law gave the Treasury Secretary Timothy Geithner the authority to exempt foreign exchange derivatives if they did not pose a threat to the financial system. The market Treasury hope to shield from regulation totals roughly $30 trillion, according to the Treasury, and is the dominant means for trading currency in global financial markets. Treasury is not exempting a broader class of more complex currency derivatives from the new rules– only the market for FX “swaps and forwards” would be effected. Foreign exchange derivatives, also known as the FX or ForEx market, are among the most profitable trading operations on Wall Street. “If the too-big-to-fail banks gave out academy awards, Geithner would be best supporting regulator year in and year out,” said Michael Greenberger, a former top official at the Commodity Futures Trading Commission, noting that Goldman Sachs scored $2.2 billion in trading revenue on FX in a single quarter last year. Financial reform advocates argue that the FX derivatives Treasury wants to shield from regulation would have cratered if the Fed had not established emergency lending facilities with central banks in other countries. As foreign banks clamored for dollars in the aftermath of the Lehman Brothers bankruptcy, the Fed pumped $5.4 trillion into those programs, based on calculations by the financial reform group Better Markets, using data from the December Fed audit. “Only massive, emergency and unlimited Fed intervention in the foreign exchange markets prevented a collapse,” wrote Dennis Kelleher, CEO of the financial reform group Better Markets, in a February letter to Miller. “[Treasury’s] principal justification is that this market never had problems,” Greenberger said. “And yet some very smart people have reviewed the data and concluded that it would have collapsed without a Fed rescue.” Miller insisted on Friday that the central bank’s actions in 2008 were not an emergency response to save a faltering FX market. “The Fed actually did not intervene in this market,” Assistant Secretary for Financial Markets Mary Miller told reporters on Friday. “I think some people confuse the extension of the Federal Reserve’s swap lines to central banks globally to provide dollar liquidity which was in high demand in the financial crisis, with the ForEx swaps and forwards market.” Kelleher previously addressed this argument in a March 23 letter to Miller. “While it is true that the Fed only lent via swap lines to foreign central banks and did not lend directly to the ForEx market, it nonetheless did so in part because the FX market was not providing sufficient dollars to foreign financial institutions,” Kelleher wrote. On Friday, Miller also argued that because foreign exchange derivatives are typically very short-term contracts, the risk of problems arising are very low. But problems in another short-term market, the “repo” market, sparked the Lehman Brothers bankruptcy. “Well, the repo market is an overnight market and it collapsed,” said Michael Greenberger. “The whole purpose of the clearing requirement is to have a guarantor there when your counterparty collapses.” During last year’s financial reform bill debate. CFTC Chairman Gary Gensler warned that exempting FX derivatives would allow firms to disguise other trades as FX, enabling large portions of the broader $600 trillion derivatives market to evade regulation. The Treasury will accept public comments on its plan to exempt FX derivatives from new regulations, and make a final determination afterwards.

Read the full article →

Fed Sees Recovery Improving On Employment Growth, Higher Commodity Prices Fueling Inflation

April 13, 2011

Fed Sees Recovery Improving On Employment Growth, Higher Commodity Prices Fueling Inflation

Read the full article →

Raymond J. Learsy: Obama Echoes The American Petroleum Institute Mantra

March 31, 2011

Yes, we need to significantly diminish our consumption of oil imported or otherwise for reasons of global warming, self reliance, security and economic rationality. Important points all touched upon in the president’s energy address, together with a vision to steer the economy away from fossil fuels to alternatives ranging from biomass, electric cars and safe nuclear power. Well and good, combined with the recognition this will all take time. 2025 was set as the goal toward reducing the nation’s imports of oil by one third from the 11 million barrels a day at the beginning of the Obama presidency. However, we are living in the here and now, dealing with $105 barrel oil for West Texas Intermediate Crude (WTI), the benchmark grade traded on the New York Mercantile Exchange. At $105/bbl the price is near three times the $33/bbl in February 2009, one month into the Obama presidency. Explaining this enormous differential is where President Obama went seriously off track repeating the rote oil patch argumentation that it is all about supply and demand, as though with oil inventories touching all time highs and filled to overflowing a differential of more than $70/bbl between February 2008 and March 2011 is a rational divergence that can be explained citing the oil industry drivel of ‘it’s the market.’ Yes, as President Obama explained when more oil is consumed the price goes up. But not to this extent and not to the extent of the explosion in oil prices over the past ten years whereby it has increased by a factor of more than seven. Clearly something else is afoot. What is afoot is the manipulation of supply and prices by the Organization of Petroleum Exporting Countries (OPEC). When the president says oil can not be pumped fast enough to keep up with demand and that is why so many American families are suffering when paying for high gas prices, no mention is made that the OPEC cartel producers are willfully holding back some 6 million barrels of production a day, of which Saudi Arabia alone has shut in 4.5 million barrels. Not enough oil to meet demand? Hardly. Certainly not if your interest is curtailing needed supply, in order to hype prices. The cartel’s function is to assure that the market has no bearing to supply and demand by artificially creating a shortage of available crude. One need only sight yesterday’s Financial Times’ front page headline which speaks volumes, ” Opec Set For Export Revenue of $1000 bn .” That the President of the United States doesn’t know better is sad indeed. The perverseness of the OPEC cartel’s manipulated oil market is accentuated by the lax oversight of our regulatory agencies, such as the Commodity Futures Trading Commission, who have done little or less to rein in the rampant speculation by the Hedge Funds, the Wall Street Bank Holding Companies such as J.P. Morgan Chase, Morgan Stanley, Goldman Sachs,and for all we know by the oil producers themselves. Remember in determining the price of oil through the exchanges the market is not dealing with real (wet) barrels of oil, but rather with virtual barrels. (please see ” The Trade That Brought Us $100 Barrel Oil Teaches Us To Be Afraid, Very Afraid “) What is to keep the oil producers, or OPEC members themselves for that matter, given the enormous cash reserves held in their sovereign wealth funds, from manipulatively trading oil on the exchanges in order to push prices ever higher. As has been observed by Sen. Levin (D-Mich) when it comes to oil trading, “Right now there is no U.S. cop on the beat overseeing energy trades on over-the-counter, electronic exchanges or foreign exchanges” (please see ” The Enron Loophole Helps OPEC Serve Up a Hefty Helping of Oil Price Baloney “). That was nearly five years ago and nothing has substantively changed since. After making reference to the significant potential of domestic shale gas reserves the president then indulges us with one of the oil industry’s’ favorite rationalizations for extortionately high prices now, and higher prices to come. He regales us with one of the oil patch’s favorite axioms, the ‘peak oil’ anthem — we are running out of oil, higher prices are needed to find more oil. He thereby inadvertently is giving the likes of the American Petroleum Institute and their allies in the oil game the cover they need to lull us into being acquiescent marks whose pockets are being fleeced. This while a hapless government and Department of Energy seems unaware of the game that is being played. The president’s lament is an embarrassment in the face of the recent huge new oil discoveries offshore Brazil and West Africa and the new drilling techniques permitting potential cost effective access to the vast shale oil reserves in the United States such as the Bakken Formation extending from North Dakota, parts of South Dakota, and Montana which combined with the Green River Basin Formation has the potential of shale oil reserves of 1.5 trillion barrels — more than five times the ‘stated’ reserves of Saudi Arabia. Shale oil has already begun to flow from the Bakken field in North Dakota. And that is only the beginning. In the meanwhile the transfer of billions upon billions from American and world consumers to oil interests both domestic and foreign continues on and will continue in spite of the programs enunciated by the president if we heedlessly permit OPEC to continue controlling supply and continue to let the speculators and manipulators to turn the commodity exchanges into Frankenstein casinos.

Read the full article →

Leahy Presses Obama To Name Key Reformer To Swaps Panel

March 25, 2011

WASHINGTON — Sen. Patrick Leahy (D-Vt.) is lobbying President Obama to appoint Sean Cota, a Vermont business owner and an advocate of the regulation of the derivatives trade, to an open seat on the powerful Commodity Futures Trading Commission. Leahy sent a letter to the president on Wednesday backing Cota’s appointment. Leahy’s pick for the panel runs Cota & Cota, a longtime family-owned home heating company based in Vermont. Cota was active in the Commodity Markets Oversight Coalition, an alliance of small businesses, consumer advocates and other “end users” of derivatives. Cota was a fixture on the Hill during Wall Street reform, articulating opposition to dark derivatives markets and serving as a counter balance to industry lobbyists who insisted that regulating derivatives and clearing them in the open on an exchange would increase the cost of hedging risk. He was part of a powerful coalition of unlikely allies who lobbied to bring derivatives trading into the sun. He’s a past chairman of the New England Fuel Institute, which lobbied on behalf of reform. Leahy is a senior member of the Senate Agriculture Committee, which has jurisdiction over CFTC nominations – a relic of the days when commodity futures were used primarily by farmers to hedge pricing risk. Some small businesses still rely on derivatives to hedge against the risk of inflation or price swings, but because most derivatives aren’t traded on exchanges similar to the stock market, small end users of swaps have little way of knowing whether they’re paying a fair price or getting gouged on fees. Leahy, a Democrat from Vermont, is also chairman of the Judiciary Committee, a powerful spot and one that controls the flow of judicial nominations that the administration wants confirmed. A White House that wants its judges confirmed can resist only a small number of entreaties from the panel’s chairman. Were Cota to be nominated, he’d face an uphill climb in a Senate that is approaching stalemate on confirmations, as Democrats lack the 60 votes needed to overcome a filibuster. The CFTC is currently led by Gary Gensler, who was initially greeted by liberal Democrats with great suspicion for his role in pushing deregulation in the 1990s and his long stint at Goldman Sachs. He has since had an ideological conversion, putting him firmly on the pro-regulatory side, and counts among his allies some of his former opponents. Cota and Gensler hold many of the same positions, but the two arrived at them by starkly divergent paths. Gensler was shocked out of his deregulatory mindset when the dark derivatives market nearly brought down the global economy. Cota, meanwhile, watched fuel prices in Vermont fluctuate over the years while the cost of hedging continued to climb. “Sean has years of experience working with me and other members of Congress on financial reform efforts,” Leahy wrote in the letter to the president, which was obtained by HuffPost. “An early voice warning of manipulation and fraud needlessly driving up the cost of energy to American consumers, Sean has testified before Congress and the CFTC nine times on commodity markets and financial derivatives. His knowledge was integral in the drafting of key commodity, swap, and derivative provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.” Spokespersons for Leahy and the White House weren’t immediately available.

Read the full article →

Canadian Dollar Could Fall Further on Commodity Price Corrections

March 18, 2011

Canadian Dollar Could Fall Further on Commodity Price Corrections

Read the full article →

Raymond J. Learsy: When Ben Bernanke Comments on Oil, Watch Out Below

March 2, 2011

When it comes to public officialdom we are sadly blessed with a plethora of functionaries who just don’t get it, leaving us to foot the tab for their lack of judgment or worse. Blind spots seem embedded in some of these functionaries and on the job experience seems to count for nil. Here we have Fed Chairman Bernanke, seemingly oblivious to his past performance on the relationship between oil prices and the economy’s well being. Only yesterday he instructed us that the sharp recent increases in oil prices are unlikely to hurt the U.S. economy. To cover himself he added a lame disclaimer “unless it is sustained”. (“Rising Oil Prices Don’t Threaten U.S. Economy” Reuters 03.02.11) Feel better now, even though the stock market tanked in reaction to his words, evidencing in real time the economy’s confidence in his stewardship and ability to “get it”? Ominously we had the pleasure of Mr. Bernanke’s insights on oil once before, and it wasn’t a pretty experience. On June 5, 2008 Mr. Bernanke spoke at his alma mater addressing Harvard’s senior class. Quite incredibly he dismissed the idea that rising oil prices posed the same kind of threat to the economy than the wage-price spiral of the 1970′s. Wha?? (please see ” Oil’s Largest One-Day Gain on Record: Thank You, Mr. Bernanke “). Largely in response to Mr. Bernanke’s Harvard address oil had its largest one day jump on the commodity exchanges. It’s price spiked $6.08 a barrel. And why not, with the Fed Chairman’s whitewash of high oil prices, the sky was the limit. A very few weeks thereafter we saw oil rise to $147 a barrel, the highest ever, sending ripples through the economy that facilitated the journey to September 2008 and its financial meltdown. How fortunate we are that in these difficult times that we have such visionaries at the helm as Mr. Bernanke

Read the full article →

Daniel Dicker: Food Commodity Speculation Adds to Egypt Unrest

January 30, 2011

While the protests in Egypt are politically motivated, there is also little doubt that the rage of the populace there, as well as in Tunisia, Yemen, Algeria and elsewhere, is being inflamed by the huge and volatile increases in basic food prices. While the seeds for huge percentage increases in corn, wheat, sugar, coffee and of course oil are based in some fundamental supply shortages, they have been unnecessarily hypercharged by the influx of investor money, speculative energy and the panic of governments trying to stockpile basic foods and quench the growing hostility of its people. We’ve seen this movie before, in 2007-2008, but it hasn’t looked nearly as bad as this. Massively spiking commodity price inflation, before the global financial collapse, was a far easier problem to find solutions for and contain. Now, with practically all Western governments in the midst of austerity budgeting, less money is available to help Middle Eastern and other emerging nations find adequate and subsidized supplies. But this movie rerun is in widescreen Technicolor: the across-the-board food price increases have never seen this kind of spike before, ever. Wheat is up 75% in the last 12 months, corn up a little more. Coffee is up 85% and cotton a spectacular 140%. While flooding in Australia, a drought in Russia and weak harvests in India and China are the fundamental drivers for this upwards trend, there is little doubt that investors and traders looking to diversify and capitalize on the supply shortages are moving these prices much more significantly and faster. Commodity index investment increased an estimated and whopping $80B dollars last year, bringing total long-only commodity index investment to $350B, according to Barclays. Another $30B of commodity ETF investment is also overwhelmingly long-only, as short commitment in these instruments is normally well under 5% of float. Financial buying of commodities in indexes and ETF’s, with the speed that these instruments operate, overwhelm the futures mechanisms and cause much greater volatility and overall higher prices. We’ve seen this roller coaster ride play itself out once already in oil, moving from 2005-2008 to $147 a barrel, only to collapse to $32 dollars in March of 2009, before re-initiating its upwards trajectory. Whether financial investment in commodities can be absorbed by a free market or not, this kind of boom/bust cycle, now playing itself out again in other critical foodstuffs, is intensely destabilizing and threatens the order in brittle governments around the globe. And governments have been forced to play into this struggle. Increased stockpiling of basic commodities has added to the frenzy of price increases: Algeria and Saudi Arabia have doubled their usual stockpile of wheat, Bangladesh and Indonesia have tripled orders for rice. The mechanism for halting, or even slowing down the massive money flows into financialized commodities is lacking. Small steps on position limits and transparent clearing, mandated under Dodd-Frank legislation, have seen widespread pushback from industry advocates and trading companies. Rules for the energy markets, mandated by Dodd-Frank to be in place and operating today under the Commodity Futures Trading Commission (CFTC), are at least another year away, if they are coming at all. Very little looks to be changing. And with very little changing, we might have to get used to these street scenes in Egypt and other emerging nations elsewhere, as rage from native populations spills over from the spiking prices of simple food basics.

Read the full article →

Daniel Dicker: Food Commodity Speculation Adds to Egypt Unrest

January 30, 2011

While the protests in Egypt are politically motivated, there is also little doubt that the rage of the populace there, as well as in Tunisia, Yemen, Algeria and elsewhere, is being inflamed by the huge and volatile increases in basic food prices. While the seeds for huge percentage increases in corn, wheat, sugar, coffee and of course oil are based in some fundamental supply shortages, they have been unnecessarily hypercharged by the influx of investor money, speculative energy and the panic of governments trying to stockpile basic foods and quench the growing hostility of its people. We’ve seen this movie before, in 2007-2008, but it hasn’t looked nearly as bad as this. Massively spiking commodity price inflation, before the global financial collapse, was a far easier problem to find solutions for and contain. Now, with practically all Western governments in the midst of austerity budgeting, less money is available to help Middle Eastern and other emerging nations find adequate and subsidized supplies. But this movie rerun is in widescreen Technicolor: the across-the-board food price increases have never seen this kind of spike before, ever. Wheat is up 75% in the last 12 months, corn up a little more. Coffee is up 85% and cotton a spectacular 140%. While flooding in Australia, a drought in Russia and weak harvests in India and China are the fundamental drivers for this upwards trend, there is little doubt that investors and traders looking to diversify and capitalize on the supply shortages are moving these prices much more significantly and faster. Commodity index investment increased an estimated and whopping $80B dollars last year, bringing total long-only commodity index investment to $350B, according to Barclays. Another $30B of commodity ETF investment is also overwhelmingly long-only, as short commitment in these instruments is normally well under 5% of float. Financial buying of commodities in indexes and ETF’s, with the speed that these instruments operate, overwhelm the futures mechanisms and cause much greater volatility and overall higher prices. We’ve seen this roller coaster ride play itself out once already in oil, moving from 2005-2008 to $147 a barrel, only to collapse to $32 dollars in March of 2009, before re-initiating its upwards trajectory. Whether financial investment in commodities can be absorbed by a free market or not, this kind of boom/bust cycle, now playing itself out again in other critical foodstuffs, is intensely destabilizing and threatens the order in brittle governments around the globe. And governments have been forced to play into this struggle. Increased stockpiling of basic commodities has added to the frenzy of price increases: Algeria and Saudi Arabia have doubled their usual stockpile of wheat, Bangladesh and Indonesia have tripled orders for rice. The mechanism for halting, or even slowing down the massive money flows into financialized commodities is lacking. Small steps on position limits and transparent clearing, mandated under Dodd-Frank legislation, have seen widespread pushback from industry advocates and trading companies. Rules for the energy markets, mandated by Dodd-Frank to be in place and operating today under the Commodity Futures Trading Commission (CFTC), are at least another year away, if they are coming at all. Very little looks to be changing. And with very little changing, we might have to get used to these street scenes in Egypt and other emerging nations elsewhere, as rage from native populations spills over from the spiking prices of simple food basics.

Read the full article →

Daniel Dicker: Opaque Commodity Trading: You’ll Be Paying for it at the Pump

January 25, 2011

The final dam to stopping $120-a-barrel oil and $4-a-gallon gas is being breached, as financial regulation continues its daily erosion into worthlessness. Yesterday, Ohio Senator Sherrod Brown demanded that the Commodity Futures Trading Commission (CFTC) use the Dodd-Frank tools at their disposal to protect consumers and small business from artificially inflated energy prices. Yet, watching the CFTC attempt to back up Dodd-Frank legislation since it was passed has been like watching salmon flop upstream as the water drains out — it’s slow, arduous and likely to lead nowhere. It is clear now that we will instead be witness to the highest prices for commodities ever, fueled by the biggest influx of profit-driven trading and investment ever, unstaunched even in the slightest by financial regulation legislation. In my upcoming book, Oil’s Endless Bid , due out from John Wiley & Sons in March, I argue that financial influences from investors and traders and the massive growth of derivatives markets have been the single most important factor for oil’s high and unreliable price, far outstripping fundamental arguments of emerging market growth, peak oil or any other supply constraints or a devaluing dollar. Putting controls on at least some of these speculative influences was supposed to be one of the goals of Dodd-Frank, but the actual rule-making to put teeth behind the legislation has been left to the Commodity Futures Trading Commission (CFTC). But, since it began writing proposals for rules in July 2010, the CFTC has literally been buried by the pushback from industry lobbyists, hired-gun lawyers, derivatives broker/dealers and virtually every industrial corporation with a trading desk that depends even marginally on derivatives activity to protect or augment profits. The problem has been the virtual avalanche of opinion that has descended on the commissioners has been almost entirely from the industry side; no one has bothered to speak for the American public — the consumer — and the industry is lobbying for Dodd-Frank and the CFTC’s profit-dissolving proposals to go away. Consequently, there has been no substantive rule writing to date, despite the mandate of the legislation to have rules for energy markets in place by January, a deadline that the CFTC has already indicated it will miss. Two specific areas have already convinced me that the rules will ultimately be toothless, business will proceed as usual and whatever is implemented will do nothing to curb the explosive price rises we’ve seen not only in oil, but in copper, corn, coffee and cotton last year. Proposals on contract position limits, necessary to avoid any single participant from having overwhelming influence on prices, were argued previously in December without resolution. Bart Chilton, the one commissioner committed to strict position-limits in futures markets has given up on a hard limit, proposing a much weaker “point system” to monitor participants, without any authority to force any limits or liquidation of positions. If Chilton has given in on this crucial point, we shouldn’t expect substantial position-limiting rules in futures markets to come from the CFTC. Indeed, the commission has tabled the entire issue until 2012, a year past their mandated deadline. Another issue defining new swaps clearinghouses and who can own them has generated similar industry interest and push back. Creating “aggregately”-owned clearinghouses would help in transparency, fairness of access and help keep the clearing business competitive. Undue influence by a small group of banks in a new Swaps Execution Facility (SEF) threatens independent control of these new trade nexuses and gives far too much of a trading advantage for the bank owners. Republican commission members have agreed with investment bank lawyers and the Futures Industry Association (FIA) that even the proposed 40% ownership limit for any one participant is still too low. A recent Department of Justice opinion advocating third-party ownership of new SEFs has been excoriated by industry spokespersons representing the banks saying: “The DOJ letter’s analysis appears deficient and fails to consider the relevant history and features of the derivatives markets.” The intention of Dodd-Frank legislation to create transparent swaps clearing is being lost: If allowed to majority-own these new SEF’s, banks will enjoy pass-through clearing that will in name only be at all different from the bilateral clearing system that is already in place and has sunk derivative markets in the past. The bottom line is that commodity trading isn’t about to change one iota from the mechanisms that have caused one boom and bust cycle for oil already and is currently causing others in corn, coffee, copper and cotton. A great opportunity to avoid the similar problems in oil and other commodities we saw in 2008 with credit default swaps and mortgage securities is being lost. Get ready for $4 gas and your local Starbucks brew heading north of 5 bucks — all courtesy of the financial lobbyists, hedge fund traders, industry spokesmen and a brow-beaten CFTC.

Read the full article →

Canadian Dollar Continues to Diverge from Commodity Bloc Cousins

January 12, 2011

Canadian Dollar Continues to Diverge from Commodity Bloc Cousins

Read the full article →

FINANCE VIDEO: Clifford Bennett Speaks on The Impact of The Queensland Floods, The Australian Dollar and A The Outlook for Equity and Commodity Markets

January 12, 2011

FINANCE VIDEO: Clifford Bennett Speaks on The Impact of The Queensland Floods, The Australian Dollar and A The Outlook for Equity and Commodity Markets

Read the full article →

Euro Leading the Way in Market Thin Rally; Commodity Bloc Underperforms

December 28, 2010

Euro Leading the Way in Market Thin Rally; Commodity Bloc Underperforms

Read the full article →

Video: Rogers Predicts a `Colder Than Normal’ U.S. Winter

December 27, 2010

Dec. 27 (Bloomberg) — Matt Rogers, president of Commodity Weather Group, talks about the U.S. winter weather outlook and the possible impact on the economy and energy prices. Rogers speaks with Carol Massar on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Read the full article →

Cotton Futures Reach Record High

October 18, 2010

Cotton reached the highest price since the commodity began trading in New York 140 years ago as demand for imported fiber rose from textile mills in China

Read the full article →

Video: John Stephenson Says Alcoa Stock `Poised’ to Rise: Video

October 7, 2010

Oct. 7 (Bloomberg) — John Stephenson, portfolio manager at First Asset Investment Management and author of “The Little Book of Commodity Investing,” talks about Alcoa Inc. earnings. The largest U.S. aluminum producer reported third-quarter profit that topped analysts’ estimates and raised its 2010 global consumption forecast to a 13 percent increase on higher demand in China, Brazil and India. (Source: Bloomberg)

Read the full article →

Video: SEC’s Schapiro Sees `Work to Do’ After Report on Crash: Video

October 5, 2010

Oct. 5 (Bloomberg) — U.S. Securities and Exchange Commission Chairman Mary Schapiro talks with Bloomberg’s Peter Cook about the SEC’s joint report with the Commodity Futures Trading Commission on the May 6 stock market crash. The report found that the automated sale of stock futures without regard to price and “hot potato” trading by computer-driven firms that briefly created an illusion of liquidity helped trigger the crash, turning an orderly selloff into an $862 billion rout as buy orders evaporated. (Source: Bloomberg)

Read the full article →

Video: Joyce Says Curbs on Stock Trading May Reduce Volume: Video

October 4, 2010

Oct. 4 (Bloomberg) — Thomas Joyce, chief executive officer of Knight Capital Group Inc., talks with Bloomberg’s Julie Hyman and Suzanne O’Halloran about the so-called flash crash in stocks on May 6 and regulation of the market. According to the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission a large trader’s routine attempts to hedge against losses helped set off a chain of events that sent the Dow Jones Industrial Average down 998.50 points. (Source: Bloomberg)

Read the full article →

Video: CFTC’s Chilton Says Markets Safer Since `Flash Crash’: Video

October 1, 2010

Oct. 1 (Bloomberg) — Bart Chilton, a member of the Commodity Futures Trading Commission, discusses today’s joint report by the CFTC and the Securities and Exchange Commission about the May 6 computer-driven stock market crash. The report found that the automated sale of stock futures without regard to price and “hot potato” trading by computer-driven firms that briefly created an illusion of liquidity helped trigger the crash, turning an orderly selloff into an $862 billion rout as buy orders evaporated. Chilton talks with Peter Cook on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Read the full article →

‘Flash Crash’ Report: Waddell & Reed’s $4.1 Billion Trade Blamed For Market Plunge

October 1, 2010

WASHINGTON — A trading firm’s use of a computer sell order triggered the May 6 market plunge, which sent the Dow Jones industrial average dropping nearly 1,000 points in less than a half-hour. A report issued Friday by the Securities and Exchange Commission and the Commodity Futures Trading Commission determined the so-called “flash crash” was caused when the trading firm executed a computerized selling program in an already stressed market. The firm’s trade, worth $4.1 billion, led to a chain of events the ended with market players swiftly pulling their money from stock market, the report said. The report does not name the trading firm. But only one trade that day fit the description in the report. The firm Waddell & Reed, based in Overland Park, Kan., has acknowledged making such a trade that day. The free fall highlighted the growing complexity and diversity of the fast-evolving securities markets. Sleek electronic trading platforms now compete with the traditional exchanges, with stocks now traded on some 50 exchanges beyond the New York Stock Exchange and the Nasdaq Stock Market. Powerful computers give so-called “high frequency” traders a split-second edge in buying or selling stocks – based on mathematical formulas. The risk looms that electronic errors at high speeds could ripple through markets and disrupt them. The stock market was already stressed even before the plunge that day. Anxiety was mounting over a debt crisis in Europe. The Dow Jones was down about 2.5 percent at 2:30 p.m. when the trader placed an enormous sell order on a futures index of the S&P’s index. The trade on the E-Mini S&P 500 was automated by a computer algorithm that was trying to hedge its risk from price declines. In that one trade, 75,000 contracts were sold in a span of 20 minutes. It was the largest single trade of that investment since the start of the year. The firm’s previous transaction of that size took more than five hours, the report notes. The trade triggered aggressive selling of the futures contracts and that sent the index down about 3 percent in four minutes. In a previous statement, Waddell & Reed acknowledged that it had sold the contracts to reduce its funds’ risk quickly. It said traders were worried that the European debt crisis could spread to U.S. markets. The company maintained that the transaction “was not the cause of any abnormal price action.” It said the move involved just 1 percent of the contracts of that type that changed hands on May 6. The sale would not have caused problems in a normal market, the company said. “Our portfolio managers and the funds acted in a manner consistent with the interests of their fund shareholders,” it said. Nearly 21,000 trades were canceled in the ensuing weeks because the exchanges deemed them erroneous. Responding to the episode, the SEC and the major U.S. exchanges agreed on a six-month pilot program that briefly halts trading of some stocks that mark big price swings. The new “circuit breakers” are in effect until Dec. 10. Under the rules, trading of any Standard & Poor’s 500 stock that rises or falls 10 percent or more within a five-minute span is halted for five additional minutes. On May 6, about 30 stocks listed in the S&P 500 index fell at least 10 percent within five minutes. (This version CORRECTS where the firm is based. )

Read the full article →

Video: Lee Says October Could Be `Very Good’ for U.S. Stocks: Video

October 1, 2010

Oct. 1 (Bloomberg) — Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co., talks with Bloomberg’s Julie Hyman and Mark Crumpton about the outlook for the U.S. stock market. Lee also discusses the Securities and Exchange Commission and Commodity Futures Trading Commission’s report on the May 6 stock market crash and his investment strategy. (Source: Bloomberg)

Read the full article →

Weekly Commodity Update : Good week for commodities

September 20, 2010

Weekly Commodity Update : Good week for commodities

Read the full article →

Video: Barratt Says Rice Poised for Gains, Offers `Good Value’: Video

August 23, 2010

Aug. 24 (Bloomberg) — Jonathan Barratt, Sydney-based managing director at Commodity Broking Services Pty, which manages risk for agricultural growers and users, talks about the outlook for rice prices. Rice, this year’s worst-performing grain, is set to rally as consumers and investors seek alternatives to wheat after heat waves, wildfires and floods ruined crops across the Northern Hemisphere. Barrat also discusses the outlook for soybeans, corn and wheat. He speaks with Bloomberg’s Rishaad Salamat. (Source: Bloomberg)

Read the full article →

Raymond J. Learsy: Oil Market Manipulation has Crude Prices Sky High

August 23, 2010

It makes no sense. Today’s price of oil is $74 a barrel, having retreated these past days from over $80/bbl. This, a price more than 100 percent higher that the $33/bbl touched in February 2009. This, with land storage so filled to the brim that over 30 million barrels are kept in floating storage at sea. As one example, Kuwait’s crude oil exports to Japan plunged by 47 percent to less than five million barrels a month. In spite of the summer driving season inventories of gasoline in the United States are rising. Supplies of oil at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange futures contract are less than 1 percent from their all time high reached in May of this year. Inventories in a 15 state region that includes Illinois rose to 97.7 million bbls/oil earlier this month, the highest ever since data was recorded, beginning in 1980 according to Energy Department Report. The price of crude taken together with the country’s jobless rate of 9.6 percent makes no sense at all. Clearly the price of oil has lost all ballast to the dynamic of supply and demand. This space has repeatedly addressed the machinations of the Organization of the Petroleum Exporting Countries (OPEC), the speculative excess on the commodity exchanges, the manipulated oil trading by the oil producers (please see ” BP’s Smoking Gun and the Manipulation of Oil Prices ” ) and myriad other factors that have made oil prices, and the prices all of us are paying for downstream products such as gasoline, heating oil, diesel and on, an outrageous and indefensible tax on the public’s well being (please, I am talking about the price of oil and the price these products and the transfer of billions upon billions of dollars to oil interests. The issue of oil/fossil fuel consumption and its impact on the environment is something else altogether and cannot be solved by making the oil producers and the oil speculators ever richer). Interestingly an article in the Wall Street Journal blares ” Oil Gets a New Dance Partner: Stocks ” marveling at the correlation between stock prices and oil prices. Yet, digging a little deeper into the article a much more significant aspect is touched upon. “Oil and stocks are joined up by actual money flows as more fund managers… and so called “algorithmic traders” who trade on technical signals instead of fundamentals. According to John D’Agostino, a former Nymex executive, “It’s fundamentally a breakdown of the market structure.” The article goes on to explain “In recent years commodity exchanges have built up their technologies to allow easier access for computer based traders which have become a dominant force in some markets”. That traders “tend to do the same thing at the same time not because of the fundamentals rather because there is so much money under management that hey have become the markets.” According to another trader quoted in the article, “Whatever is producing this phenomenon is growing in force not waning in force.” For those who doubt that the oil market can/is being manipulated, only last week the CFTC reached a $12 million settlement with ConAgra Trade Group, whom the Commodity Futures Trading Commission (CFTC) accused of purposely executing a trade for an oil futures contract at “a non bona fide price”. (Please see New York Times ” Ex-Con Agra Unit Settles With U.S. Over Artificial Oil Trade “). In January 2008 a ConAgra instructed a floor trader on the New York Mercantile Exchange to close a spot market futures contract at $100/bbll thereby giving him bragging rights of being the fist to break the $100/bbl barrier (also see ” The Trade That Brought Us $100/bbl Oil Teaches Us to Be Afraid, Be Very Afraid “). The basis of the CFTC’s action was that the trade was an infraction of the Exchange rule that “prohibits transactions that cause a price to be reported that is not a true and bona fide price.” Mr. Scott D. O’Malia, one of the CFTC commissioners made it known that he would have preferred the commission to vote to pursue a case for ‘attempted manipulation’ rather than the lesser charge. Well there it is. If ConAgra Trade Group was hit with a $12 million fine because they caused a “non bona fide price level” to be reported, then a strong argument must be made that those “algorithmic traders” responding to technical signals rather than fundamentals, or trading simply because there is so much money under management that they become the market overriding the fundamentals, resulting in trading that has little bearing nor reflect a “true and bona fide price”. In doing so are they are breaching the guidelines set forth by the CFTC, replicating in form and spirit the “non bona fide price level” that resulted from ConAgra’s trade, except in far greater measure. Of course, the situation of distorted trading on the commodity exchanges could be contained in large measure if Congress stepped in to restrict participation by computer-based traders. But don’t hold your breath. The oil boys would harness their “K” Street lobbying teams, the best that oil money can buy, and combine forces with the Wall Street speculators in order to squelch any effort to bring some rationale, some sanity, some semblance of fair play back to the oil trading pits. The oil interests have the money to do it, and we have a Congress whose election campaigns yearn for the money they can provide and are therefore happily do their bidding. We, in turn as consumers, have no alternative but to pay, pay, pay while the oil interests and the oil speculators gorge themselves with billions of undeserved margins and profits while great swaths of our population are suffering massive economic turmoil. All this, while our Administration continues to snooze away (please see ” The Price of Oil Has Doubled On Obama’s Watch–The Time For Action is Now “) on this issue core to our economic well-being!Oil

Read the full article →

Video: Matt Rogers Still Sees `Very Active’ Hurricane Season: Video

August 13, 2010

Aug. 13 (Bloomberg) — Matt Rogers, president of Commodity Weather Group, talks about the 2010 hurricane season and the “disconnect” between market and forecaster expectations.¶ Rogers talks with Erik Schatzker on Bloomberg Television’s InsideTrack.” (Source: Bloomberg)

Read the full article →

JP Morgan Buys 220M RBS Sempra Stake

August 10, 2010

US power company Sempra Energy and Royal Bank of Scotland are selling most of the remaining assets of their commodity trading joint venture RBS Sempra

Read the full article →

Robert Reich: Greenspan, Rubin, and Herbert Hoover

August 8, 2010

Herbert Hoover’s disciples are making noises even as America moves closer towards a double dip recession Fed Chair Alan Greenspan tells the New York Times all the Bush tax cuts should expire as scheduled, even those that benefit the middle class and not the rich. His reason: the nation’s looming deficit requires it. On Sunday, former Treasury Secretary Robert Rubin, appearing on CNN, says any further effort to stimulate the economy would be “counter productive,” and that policy makers instead should craft a deficit-reduction plan. Greenspan is only partly wrong. The Bush tax cuts should expire for the top 2 percent of filers (those earning over $250,000) because they save rather than spend a large portion of their incomes, and we need all the spending we can get. The cuts should be extended for everyone else because they’ll spend them. The top 2 percent now receive almost a quarter of total national income, which is one reason why the middle class doesn’t have the purchasing power to lift the economy on its own. The best way to give them even more purchasing power would be to give the middle class a larger tax cut — say, a payroll tax holiday on the first $20,000 of income. Rubin is entirely wrong. As Friday’s jobs report shows, the gap between total private spending (consumers plus business plus net exports), on the one side, and the nation’s capacity to produce goods and services at or near full employment, on the other, is still a chasm. So government needs to do more spending now, in the short term, in order to get people back to work and the economy back on track. In 1999, both Greenspan and Rubin urged Congress to repeal the Glass-Steagall Act that had safely separated commercial from investment banking. In 2000 they argued against allowing the Commodity Futures Trading Corporation to regulate derivatives. Until recently, Rubin ran the executive committee at Citigroup, whose excesses required a massive taxpayer bailout. In 2001 Greenspan supported the Bush tax cuts that blew a gigantic hole in the federal deficit and mostly benefited the wealthy. In 2002 he lowered interest rates to near zero but refused to oversee how banks were using their almost-free borrowings. Both Greenspan and Rubin are deficit hawks. So was Herbert Hoover and so was Hoover’s Treasury Secretary Andrew Mellon. And look what Hoover and Mellon got us into. When we least need him, Hoover is being exhumed. This post originally appeared at RobertReich.org .

Read the full article →

Video: Chilton Not Concerned New Rules to Push Trading Overseas: Video

July 29, 2010

July 29 (Bloomberg) — Bart Chilton, a commissioner of the Commodity Futures Trading Commission, discusses regulation of the over-the-counter derivatives market. Chilton, speaking in Washington, talks with Peter Cook on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

Read the full article →

Video: Barratt Sees `Light at The End of The Tunnel’ for BP: Video

July 20, 2010

July 20 (Bloomberg) — Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, talks with Bloomberg’s Linzie Janis about the outlook for BP Plc. BP seeks cash to meet the costs of the worst oil spill in U.S. history. BP’s talks to sell half its stake in Alaska’s Prudhoe Bay oil field to Apache Corp. stalled twice over the weekend, raising doubts about whether the deal will be completed, said a person with knowledge of the matter.(Source: Bloomberg)

Read the full article →

Video: Barratt Sees `Light at The End of The Tunnel’ for BP: Video

July 20, 2010

July 20 (Bloomberg) — Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, talks with Bloomberg’s Linzie Janis about the outlook for BP Plc. BP seeks cash to meet the costs of the worst oil spill in U.S. history. BP’s talks to sell half its stake in Alaska’s Prudhoe Bay oil field to Apache Corp. stalled twice over the weekend, raising doubts about whether the deal will be completed, said a person with knowledge of the matter.(Source: Bloomberg)

Read the full article →

Jim Collura: Derivatives Reform Will Benefit — Not Burden — End Users

July 15, 2010

In the course of the two-year long debate on how best to reform the derivatives markets, much attention has been given to the concerns of so-called “end-users,” or businesses that use derivatives to hedge against various forms of risk, including not only airlines, utilities and manufacturers, but also small business farmers, gasoline stations and home heating companies. However, end-users have had growing concerns about the state of the derivatives markets that predate the 2008 financial collapse. Many have argued that these concerns are addressed, not exacerbated, by proposed reforms included in Wall Street reform package. For more than a century, derivatives have been used by producers, processors, transporters and marketers of commodities – such as gasoline, home heating oil, wheat and livestock – to insulate their businesses and consumers from price risk. And for much of their history, they were a stable, reliable and transparent means of doing so. However, if you speak to anyone who has used derivatives products for more than a decade, they will tell you that everything changed in 2000. The financial industry successfully secured blanket exemptions from Congress and federal regulators that led to a transformation of derivatives markets from simple commodity exchanges to the opaque and unregulated, multi-trillion dollar markets we know today. To remain competitive, regulated exchanges weakened their own prohibitions on speculation, and allowed traders in the U.S. to access new subsidiaries in countries with weaker oversight. Over-the-counter and foreign derivative trading markets boomed, to the detriment of the traditionally stable domestic environments. These changes lead to a “Wild West”-like environment. Excess volatility became the norm. Price spikes in commodities, most especially those experienced in 2007-2008, seemed to be dislocated from supply and demand fundamentals. Speculators were diving head-long into derivatives, and by 2008, came to dominate commercial hedgers four-to-one. As commodity speculation swelled, retail gasoline and home heating oil prices surged beyond $4 per gallon. Trade associations attributed as much as $1 or more of these prices to speculation, despite the more than adequate inventories and a decline in demand. Global food prices were similarly rocked and the UN estimates that an additional 130 million people were driven to hunger as a result. Derivatives reform will address many of these issues. Mandatory reporting, clearing and capital requirements for all derivatives would create transparency and much needed confidence in these markets, while a hedge exemption for bona-fide end-users would protect commercial businesses. It would also require that foreign exchanges doing business in the U.S. register with our regulators and encourage new cooperation with overseas agencies. The bill also contains new tools that will help the Commodity Futures Trading Commission or CFTC, the principal regulator of derivatives, police against fraud and manipulation. It would also protect end-users from excessive speculation by expanding a 1936 statute requiring the CFTC to limit positions that speculators can take in a commodity, include over-the-counter markets in these limits and, importantly, establish aggregate limits across all markets. Still, news coverage and op-eds have suggested that end-users are unified in opposition to reform due to fears that it will result in new government regulation and capital requirements, despite the well articulated hedge exemption and support for the legislation from airline, trucking, gasoline, home heating, and various agricultural industry groups. If the “Wild West” was tamed by law and order, then the derivatives markets will be tamed by increased transparency, stability and confidence that legislative reform will bring. An important and reliable tool that hedgers have relied on for years will be returned to them and for this reason, end-users will benefit – not be burdened by – long overdue and comprehensive reform. The only derivatives users that need worry about this reform are those that have exploited the status quo recklessly and irresponsibly, driving up costs for all Americans and threatening our nation’s economic stability and competitiveness. They fear it, and rightly so.

Read the full article →

Raymond J. Learsy: BP’s Smoking Gun and the Manipulation of Oil Prices

June 29, 2010

In an eye-opening front page article the New York Times (“Bold Player in Energy Markets, BP Losses Trading Floor Swagger” 06.28.10) gives smoking gun evidence of the manipulation of oil and oil product prices through trading on the commodity exchanges. It places into focus and question, what benefit is derived from these exchanges as currently constituted, other than providing a speculation platform and con game for insiders and an instrument for oil producers to hype the price of their commodity? At the heart of the article and as shining example of miscreant trading behavior are our good friends at BP. As the NYTimes informs us, “BP, whose reputation for taking risks in the oil fields is matched only by its daring in the energy markets,” has remained committed to aggressive trading that has brought in as much as a fifth of the company’s profits, or some $2billion to $3 billion a year, which before the cost of the massive destruction in the Gulf, was big money. Given its size, its ability to make enormous bets, given its enormous financial resources permitting it to hold on to positions almost indefinitely, its vast infrastructure, its standing as one of the largest producers of oil in the world, it was able to take on, with little risk, huge positions, and hold on to them until they paid off. Now this begs the question, using the commodity exchanges as a pricing tool, would BP or any other major producer (say the likes of Shell, or the national oil companies of the Organization of Petroleum Exporting Countries or their agents) trade the exchanges to pressure prices lower?? And that is the crux of the issue. Permit me to quote once again the words of Leon Hess, founder of Hess Oil, that erstwhile sage, and eminently successful general of the oil wars, made before a Senate Committee on Government Affairs some 20 years back. They were as true then as they are now when incorporating all the trading exchanges that have blossomed around the world, ” I’m an old man, but I’d bet my life that if the Merc (the Nymex) was not in operation there would be ample oil and reasonable prices all over the world without this volatility”, (please see “Oil at $111 a Barrel: We Are Being “Sovereignly Screwed!” 03.17.08) Which brings us back to BP. Would BP trade on the exchanges to bring down the price of the company’s basic profit generating commodities? Given BP’s huge interest and investment in production resources it would be highly unlikely. One can fairly assume that BP would trade in a manner that would be supportive of the overall objectives of BP, which is to sell its oil and downstream products including gasoline and propane, at the highest price level possible. And when it does, it occasionally gets caught for trying to manipulate the market. In 2005 BP agreed with the New York Mercantile Exchange ‘Nymex’- (please see “Gasoline Over $3.00 Gallon, Why? BP Knows Plus Alan Greenspan Sings In the Energy Choir” 07.12.06) to pay a substantial settlement to resolve allegations of improper oil trading activities and assurances to clean up its trading activities in the future. The settlement cited so-called wash trades- the simultaneous swaps of the same amount of a commodity for the same price. The technique is used to improperly boost trading volumes or revenue and most significantly, to influence market pricing. Clearly, the constraints on BP’s activities on the Nymex would have little or no impact on their on going trading on the London, Singapore, Hong Kong or other world exchanges. Nor did it stop them from subsequently trying to corner the propane market, waking up our otherwise somnambulant Commodities Futures Trading Commission (please see “Energy Trading Oversight Awakens from its Slumber with Anticipated BP Settlement” 10.25.07) seeking indictments against BP resulting in a fine of $303 million to settle civil charges and thereby avoiding criminal prosecution for allegedly manipulating and cornering the U.S. propane market. Ironically Tony Hayward, CEO of BP, given his recent appearance before a Senate Committee, showing himself to be a wanting expert on Gulf Oil Spills and much else, proclaimed earlier this year, with deep inside knowledge, that the “drop in the dollar is a major factor behind oil prices breaking through $75/bbl.” There, now you have heard it from an ‘expert’ without an agenda and without any interest in putting forward self serving explanations for every jump in the price of oil (please see “A Short Tutorial on the High Price of Oil and the Falling Dollar” 10.19.07). Clearly the commodity exchanges are subject to being manipulated and have and in likelihood are continuing to be manipulated. Consider that more than 137 billion barrels of oil were traded on the Nymex alone last year. That is not counting all the other exchanges throughout the world referred to above. And yet the world consumes barely 30 billion barrels of oil annually. And here we have BP clearly in the game to maximize profits, and the higher they can push prices through their trading on the exchanges, the better for BP’s bottom line. How many other producers worldwide are playing the same game? How many Wall Street or London or Singapore bank oil trading desks with no interest in consuming or producing oil, but with wide access to banking resources and to oil company trading intelligence, are going along for the profitable ride And who pays the bill? Yes, you guessed it, you do. Not only at vast economic cost, but at grave risk to our national security. Thanks for the lesson BP!

Read the full article →

Stock, Commodity Positioning Hints US Dollar to Decline

June 29, 2010

Stock, Commodity Positioning Hints US Dollar to Decline

Read the full article →

SEC Postpones Single-Stock Circuit Breaker Meant to Prevent Market Crashes

June 4, 2010

By Nina Mehta and Whitney Kisling June 5 (Bloomberg) — Circuit breakers to slow trading in Standard & Poor’s 500 Index stocks during periods of volatility will be delayed for at least a week, according to the Securities and Exchange Commission. Regulators asked exchanges to impose coordinated halts following the May 6 rout that erased $862 billion from U.S. equities in less than 20 minutes. Securities executives proposed methods on May 18 to pause trading across markets when a stock in the S&P 500, the benchmark index for U.S. equities, rises or falls 10 percent in five minutes. The SEC said yesterday that a pilot program for the circuit breakers will begin within two weeks, according to an e-mailed statement. NYSE Euronext said it wouldn’t start its trial of the system on June 7 because it hadn’t received SEC authorization. Nasdaq OMX Group Inc., based in New York, is prepared to introduce circuit breakers on the S&P 500 companies it lists on June 14, pending SEC approval, spokesman Robert Madden said. “The majority of work needed on the circuit breaker needed to be done by the listing exchanges,” said William Karsh , chief operating officer of Direct Edge Holdings LLC in Jersey City, New Jersey. His firm is converting two U.S. trading stock venues into exchanges. “We’re prepared to go forward as soon as they are,” he said. Trading in a stock will be paused for five minutes when the 10 percent threshold is triggered. The plan supplements existing rules, including a market-wide halt when the Dow Jones Industrial Average falls 10 percent from the previous day’s closing price. Public Comments The SEC said its staff is reviewing public comments about the program and will present the proposals to the commission next week. Circuit breakers will be introduced a week after they’re approved, the agency said yesterday. Credit Suisse Group AG ’s Dan Mathisson said the circuit breakers should be broadened to more stocks and operate throughout the day. They should also lead to a 10-minute halt in trading instead of a 5-minute pause, according to a letter the Zurich-based firm sent the SEC yesterday. “We think a 10-minute halt would be a reasonable compromise: long enough to allow humans time to make rational decisions, while still short enough to avoid overly disrupting the markets,” Mathisson wrote. Less than that wouldn’t give investors enough time to conduct “meaningful analysis and understand the reasons behind a sudden price drop, and then make a rational decision to buy or sell,” he said. More Regulations James Angel , a professor at Washington-based Georgetown University and an expert on the structure of markets, told the SEC on May 25 that more regulation is needed to prevent plunges. “We need a contingency plan for how to handle the simultaneous tripping of circuit breakers in hundreds or even thousands of stocks,” he said in a letter. “Under such disorderly conditions, it is unlikely that the market will be discovering the correct prices.” He recommended a 15-minute pause in all trading if 10 or more stocks in the Dow average or 50 in the S&P 500 rise or fall a certain amount. Nasdaq ’s chief executive officer said yesterday that equities and derivatives exchanges in the U.S. need to adopt the same trading curbs in response to last month’s plunge. “We believe there should be one set of unified circuit breakers,” Robert Greifeld , the chief executive officer of Nasdaq, told reporters in New York yesterday. “That uniform set of circuit breakers shouldn’t be just in the cash markets but should include futures markets.” Removing Uncertainty Greifeld said uncertainty about what venues including CME Group Inc. ’s Chicago Mercantile Exchange, the world’s largest futures market, will do when prices swing should be eliminated. CME is regulated by the Commodity Futures Trading Commission, not the SEC. Nasdaq said on June 2 that it would also introduce a mechanism to pause trading in all companies listed on its market if shares rise or fall a set amount in 30 seconds. The program, to begin in the third quarter, would only apply on the Nasdaq Stock Market. The shares could continue to trade elsewhere. NYSE Euronext’s New York Stock Exchange has had a system known as liquidity replenishment points in place since 2006 that slows trading if a stock moves rapidly. NYSE holds automated auctions to gather buy and sell orders and determine a price based on that demand. These auctions can take place in less than a second or after trading has paused for half a minute or more. “We have to think first and foremost about our issuers,” Greifeld said. Companies want assurance that the prices of their shares are not arbitrary or unrelated to the value of the firms, he said. Nasdaq will end the pause after one minute. Stub Quotes Greifeld also said his firm plans to modify rules to eliminate stub quotes, which are bids and offers that some have blamed for exacerbating the May 6 plunge in U.S. stocks. Some stocks fell to pennies that day as sell orders executed against stub quotes. Brokers can set those as low as a 1 cent a share because they’re never expected to be used. Nasdaq canceled about 12,300 trades from 2:40 p.m. to 3 p.m. on May 6, or 59.3 percent of the total number of voided transactions across markets. NYSE, which already had volatility curbs in place, voided no trades. The goal over the “short term is to have stub quotes be replaced by quotes that are realistically priced to the market at the time,” Greifeld said. Companies such as Accenture Plc traded for 1 cent on May 6. One way to avoid this could be to require market makers to quote “within 15 percent of the market,” he said. Some brokers and algorithms send orders into the market that shouldn’t have been submitted on May 6, he said. These included “dumb sell-short orders” and other requests to sell shares at a “dumb price,” he said. To contact the reporters on this story: Nina Mehta in New York at nmehta24@bloomberg.net ; Whitney Kisling in New York at wkisling@bloomberg.net .

Read the full article →

Raymond J. Learsy: Financial Reform Legislation. As Banks Win, We Lose Twice. The Urgent Need For A Tough ‘Volcker Rule’

June 4, 2010

As lawmakers return from recess next week to begin working on merging bills of financial reform legislation passed by the House and Senate, the bank holding companies, the likes of Morgan Stanley, JP Morgan Chase, Goldman Sachs are fighting tooth and nail to water down a key provision known as the Volcker Rule. Congress’ financial reform legislation, the’ Wall Street Bill’ would in effect prohibit banks from proprietary trading , that is trading for their own account, owning hedge funds or private equity firms. This provision would be a key measure in any significant bank reform. First it would prohibit banks from playing casino with federally insured depositors money as well as virtually cost free subsidized money made available through Fed programs. Money that is being used in large measure to place outright bets on the direction of myriad markets and commodities, which serve little or no banking function. Second, having access to these vast pools of liquidity through their banking status, their proprietary activity results in consumers everywhere paying up for end products that have these commodities or financial instruments as the cost base for downstream products at the consumer level (i.e. crude oil and the price of gasoline). We pay more while the banks profit handsomely from these distortions. As but one example the price and market for oil has been seriously distorted by banks becoming oil traders with their access to near limitless liquidity resulting in price spikes in oil caused in large measure by their trading activities on the commodity exchanges. It has and continues to permit them to purchase millions of barrels of oil, pulling them off the market and holding them in limbo for months at a time stored in supertankers at sea. Oil, that had it not been purchased and stored, would under normal market conditions of supply and demand, have forced down the price of oil to everyone’s benefit other then oil producers and the banks themselves. There is a whole range of commodities and derivatives where similar distortions apply. As things now stand we subsidize the banks with their access to federally insured deposits that are put at great risk by their proprietary trading and by giving them an additional kicker in making funding available at virtually no cost to them while others would have to pay a going interest rates. Altogether, a subsidy to the banks at taxpayer expense. And then, in turn, we pay more for the goods and services whose prices have been strongly impacted by their gambles on ever higher prices with virtually cost free funding. They must take us for fools, which sadly we are. The lobbyists for the banks are certainly working overtime and it remains to be seen how steadfast or pliable our elected officials are in the face of this moneyed offensive. Goldman Sachs for one, given its connect to all things Washington, seems to have the pulse of the bill’s outcome and its structure. Barely three weeks ago their commodity trading division, J. Aron & Co. purchased the gas trading operations, not the production operations, of Nexen Energy. Nexen’s trading operations are among the ten largest gas trading operations on the continent, a company that buys and sells some 6 billion cubic feet of gas a day and manages some 50 billion cubic feet of gas storage capacity. Disconcertingly, the company is located in Calgary Canada, once home of that other venture into gas trading, Amaranth LLC. Amaranth collapsed spectacularly in 2006 losing more that $6 billion. But hey, that was their and their creditors’ money. Were the same now to come to pass with Nexen, much of it would be ours.

Read the full article →

Video: Rogers Discusses Outlook for 2010 Hurricanes, Oil Spill: Video

May 28, 2010

May 28 (Bloomberg) — Matt Rogers, president of Commodity Weather Group, talks with Bloomberg’s Erik Schatzker about the outlook for the 2010 U.S. hurricane season. Rogers speaks from Washington. (Source: Bloomberg)

Read the full article →

Fat-Finger Errors Ruled Out as U.S. Regulators Probe Six Causes for Crash

May 18, 2010

By Nick Baker May 18 (Bloomberg) — U.S. regulators said they have found six possible explanations for the May 6 crash that wiped out 1,000 points from the Dow Jones Industrial Average, including plunging exchange-traded funds and futures as well as traders withdrawing from the market. The Securities and Exchange Commission and Commodity Futures Trading Commission concluded that erroneous orders known as fat-finger errors, computer hackers and terrorism aren’t to blame. To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net

Read the full article →

Weekly Commodity Update : Calamity in global financial markets

May 10, 2010

Weekly Commodity Update : Calamity in global financial markets

Read the full article →

Weekly Commodity Update : Calamity in global financial markets

May 10, 2010

Weekly Commodity Update : Calamity in global financial markets

Read the full article →

Electronic Trading to Blame for Plunge, NYSE Says

May 6, 2010

By Chris Nagi and Matt Miller May 6 (Bloomberg) — Computerized trades sent to electronic networks turned an orderly stock market decline into a rout, according to Larry Leibowitz , the chief operating officer of NYSE Euronext. Nasdaq OMX Group Inc. canceled trades in 286 securities that rose or fell 60 percent or more. While the first half of the Dow Jones Industrial Average’s 998.5-point intraday plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television. “If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split-instant because there really was no liquidity in electronic markets.” The selloff briefly erased more than $1 trillion in market value as the Dow average tumbled 9.2 percent, its biggest intraday percentage loss since 1987, before paring the drop. The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission are reviewing “unusual trading” that contributed to the plunge. NYSE Volume More than 29.4 billion shares changed hands in all U.S. markets today, including traditional exchanges such as the NYSE, rivals Bats Global Markets Inc. in Kansas City and Jersey City, New Jersey-based Direct Edge LLC, and other electronic platforms. The level compares with 2.58 billion traded on the NYSE, making it the biggest gap between the two in more than three years, data compiled by Bloomberg show. Increasing automation and competition have reduced the Big Board and Nasdaq’s volume in securities they list from as much as 80 percent in the last decade. Now, two-thirds of trading in their companies takes place off their networks because orders are dispersed across dozens of competing venues. Nasdaq OMX in said it will cancel stock trades that were more than 60 percent above or below price levels at 2:40 p.m. New York time, just before U.S. equities plummeted. The New York-based firm investigated trades between 2:40 p.m. and 3 p.m. ‘Snapped Back’ “The fact that it snapped back so quickly made it clear that it was an aberration,” Leibowitz said. “When a large order or series of orders comes into electronic markets, they don’t really have any way to recognize either that they’re a mistake or to slow them to down to attract the proper liquidity on the other side.” The NYSE doesn’t know where the trades that triggered the selloff originated, according to Leibowitz. Citigroup Inc. said it found “no evidence” that it was involved in erroneous trades, a finding supported by futures market CME Group Inc., after U.S. equity markets plunged today. The market rout triggered scrutiny from lawmakers. U.S. Representative Paul Kanjorski , a Pennsylvania Democrat, set a May 11 hearing. U.S. Senator Ted Kaufman , a Delaware Democrat, questioned whether markets that increasingly rely on computer algorithms to execute thousands of transactions in seconds triggered false trades. “This is unacceptable,” Kanjorski, who leads a House Financial Services subcommittee that oversees the SEC, said in a statement. “We cannot allow a technological error to spook the markets and cause panic.” Accenture, Exelon Accenture Plc , Exelon Corp. and Philip Morris International Inc. were among 27 U.S. stocks with at least $50 million in market value that dropped more than 90 percent as U.S. equities tumbled, before recovering by the close, according to Bloomberg data excluding exchange-traded funds. The Nasdaq’s decision means that trades in Cincinnati-based Procter & Gamble Co. , which fell as much as 37 percent for the biggest intraday drop in the Dow industrials, would stand. The world’s largest consumer products company said stock trades that pushed its shares down were probably an error. “Our greater concern is not the fact that a trade error occurred at all but the magnitude of its impact,” Birinyi Associates Inc., the research and money-management firm founded by Laszlo Birinyi , said in a note today. “We propose that when trading errors have occurred in the past, their impact has not been as significant and impactful because of the existence of human intervention.” To contact the reporters on this story: Chris Nagi in New York at chrisnagi@bloomberg.net ; Matt Miller in New York at mtmiller@bloomberg.net

Read the full article →

Senators Send Letter To Harry Reid Urging Strong Derivatives Reform

April 25, 2010

A bipartisan coalition of Senators concerned about weak oversight of derivatives sent a letter to Senate Majority Leader Harry Reid urging him to strengthen the current financial reform bill and resist efforts to weaken it. The letter, dated Friday, details 11 principles the Senators hope the final bill will incorporate. Derivatives — financial instruments that derive their value from other financial instruments — are used to hedge against risk, like rising interest rates or fluctuations in currency prices. Largely unregulated, they’re also used to create financial securities out of thin air (a bet on a bet on a bet, for instance), and they’re used to make bets without parties needing to front the necessary cash. It’s the implosion of these that contributed to the worst financial crisis and economic downturn since the Great Depression. The Senate is expected to begin debating the main bill, authored by Banking Committee Chairman Christopher J. Dodd, this week. A complementary bill, authored by Agriculture Committee Chairman Blanche L. Lincoln, which has jurisdiction over the Commodity Futures Trading Commission, which regulates some derivatives products, is largely viewed as the stronger of the two bills. The bipartisan coalition wants the final bill to incorporate the strongest provisions from the two measures, or at the very least adopt Lincoln’s bill as the derivatives section of the final product. The bill authored by Lincoln, of Arkansas, shines more light on megabanks’ derivatives operations than the bill put forward by Dodd, of Connecticut, experts say. “If we are to effectively regulate the derivatives market, we must start the Senate floor debate with the strongest proposal we can craft and defend against the inevitable attempts to weaken it — rather than rely upon later amendments to add essential reforms,” the letter reads. “Starting the amendment process from a position of weakness is no way to start.” Among the provisions the seven Senators hope the final bill will feature are tougher rules requiring parties to trade on regulated exchanges and exchange-like facilities, mandated collateral-posting requirements so parties put cash on the table when making their bets, position limits to prevent market manipulation (which also could deter wild swings in prices for commodities that don’t reflect the underlying economic situation), and a requirement that derivatives dealers be legally compelled to act in the best interests of their pension fund, university endowment and state and local government customers. Derivatives dealers, like Goldman Sachs and JPMorgan Chase, currently are not legally required to act in the best interests of their customers. “We urge a constructive process in which the strongest provisions of each bill are combined into a proposal to reform the derivatives market that is more effective than either current proposal, and is supported by both Chairmen,” the letter states. “In the absence of such an agreement, we would find it difficult to support comprehensive reform legislation unless the best provisions of the Agriculture Committee’s bill were included as the derivatives title of the legislation.” The letter is signed by Republican Olympia J. Snowe of Maine, and Democrats Dianne Feinstein of California, Bill Nelson of Florida, Tom Harkin of Iowa, Maria Cantwell of Washington, Byron L. Dorgan of North Dakota, and Sherrod Brown of Ohio. Read the letter below: Letter to Senate Majority Leader Reid Regarding Derivatives

Read the full article →

Video: Chilton Says CFTC Likely to Vote on Movie Futures Today: Video

April 16, 2010

April 16 (Bloomberg) — Bart Chilton, a commissioner at the Commodity Futures Trading Commission, talks to Bloomberg’s Peter Cook about his concerns over creating a market for movie futures. The CFTC may vote today on a market for box-office futures. (Source: Bloomberg)

Read the full article →

Credit Suisse expected higher commodity prices over the short term

April 7, 2010

Credit Suisse expected higher commodity prices over the short term

Read the full article →

New CFTC Commodities Limits Face Fierce Opposition

March 27, 2010

The Commodity Futures Trading Commission has received a widely negative response to its proposal to limit metals speculation with some critics questioning the agencys authority to impose the restrictions

Read the full article →

← Previous Entries