The Bad Guy: Oil Speculators

Well done!

I couldn't have said it better.

Edit: "to restrict consumption" was intended to be "to restrict buying power", 

Sub, you've assumed market manipulation is illegal.

The Dodd-Frank/CFTC position limits were supposed to be in place over a year ago, they're still not. 

The CFMA removed limitations & regulation for OTC derivatives & futures, which allows limitless speculation and no oversight or transparency.

Though the CFTC finally voted to implement them this month, the Financial lobby is now suing to stop it.

There is still no effective regulation on position limits, even when (~IF~) it's passed, it will take time to go into effect.

In other words, there could be an entity at work right now as we chat manipulating material or commodity prices via futures to take advantage of short or long positions in sectors/industries that are effected by that pricing, the same way CDO's were effected by extreme oil & Rbob prices.

Let's say the market's getting frothy, a big player, or a few, could push oil to, say, $120 and then collect on previously placed short equity positions.(referring to May 2011)

Whether or not this happened is almost moot, the possibility that it can happen is more than enough reason to regulate futures, especially now that we know how much damage can be inflicted.

Sub,

if you acknowledge the unregulated, nontransparent and limitless ability for current futures trades the CFMA allows, and -

You acknowledge that futures effect spot,

You are then acknowledging that market manipulation is not only perfectly legal, it's par for the course right now.

Before you reply, refer to the link to Barry Ritholtz I posted above,

It's an easy-to-understand infographic that puts the sheer volume of derivatives the TBTF banks trade into perspective, with $228 trillion on the market, a TBTF sneezes the wrong way and billions in wealth are lost in minutes.

"let’s ban lottery tickets" Good idea and being rigged like the market, not as far off as you may think. It has been well documented in such tricks as the Goldman roll and other things hedge funds and banks can do to move prices. Not to mention the media and their talk of war, when the threat of war now is probably less than it has been in 20 years. Once the bond market collapses then we will probably have war.



As to Sublimevoturn's comment " Commodities made up a tiny .7% of the total" First off there is a thing called the REPO market, hidden from your view. But to suggest that the commodities futures or derivatives is .7% when the Chicago exchange alone trades more money in a day than all the stock markets of the world do in a year, is insane. These guys who trade oil have planes and ships that do nothing but surveillance in the middle east just in case something happens. Figure out how much it costs to keep planes flying 24/7 just in case, and then you will understand the kind of money we are talking about.

SUB, I think you're arguing for the sake thereof.

The CFMA allows unlimited positions with absolutely no disclosure to the public on amount held, when bought or sold.

You completely missed the point on size V notional risk, that's not the issue.

The combined market cap for global stock markets is $58 Trillion.

TBTF banks now hold $228 Trillion in leveraged derivatives.

That's 4 X the total market cap of all global stock markets.

Let's say I hold $10 trillion in long CORN futures, and I am hedged against it by $9.995 trillion, my "risk" is only $5 million - peanuts by comparison.

I wait for a big spike in AG stocks, take a short position in ADM or other AG equities, then I move just A 5% position overnight that sparks a parabolic surge in Corn prices.

I clean house as ADM plummets due to margin squeeze, I did not manipulate ADM price, I simply placed a "smart" short because my "superior" ability led me to "conclude" corn was "mis-valued".

All the while, there is absolutely no requirement that I disclose my corn futures positions or trades.

This is what happened with oil in 2008, it was so obvious that the Pentagon investigated it as a potential act of financial terrorism.

That's market manipulation, it's now legal until Dodd-Frank's position limits are in place.

Sub, last note, I get the impression you're only debating contrarian to me for the sake thereof.

With that, I say DO NOT guzzle prune juice, trust me, too much prune juice is bad, bad, bad.

Sub, the article displays derivatives that represent the quantity of unknown positions traded without regulation or transparency. thanks the CFMA's allowances.

The topic of whether oil speculation is a problem has more than adequate data to support that it is.

Even the Pentagon investigated the problem itself and concluded that a terrorist could have been behind the crash of '08, by simply manipulating oil prices at a time when Sub-primes and debt were at an apex says all there is to say. 

Unless you're convinced oil @ $145/barrel was pure supply/demand, the Pentagon report is scary.

A recent CFTC report leaked by Senator Bernie Sanders that shows Goldman Sachs and Morgan Stanley were levered to the hilt in oil futures in 2008.

Is it coincidence that inside knowledge of how truly frail consumer debt was at the time could be used to GS and MS's benefit?

Coincidence that they both paid record breaking bonuses not long after?

Enough money & leverage renders futures traders & TBTF prop desks omnipotent over the stock market.

Pump grain prices, Ag stocks are fish in a barrel,
Pump energy, play refiners,
Pump NatGas, play utilities,
Pump Metals, play miners,
Pump materials, play manufacturers/retailers.
And, my favorite -
Pump oil prices, after flooding the market with derivatives based on liar loans and capitalize on mortgage defaults as disposable incomes shrivel enough to trigger defaults.

We can debate the logistical details of the BR infographic, or engage in options tutorials, but the point stands -

TBTF's have more than enough buying power and leverage to manipulate futures, futures directly affect spot prices, which in turn affect whole industries - ultimately the consumer.

No, Sub, it did not.

To quote -

" While economic analysts and a final report from the federal government's Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine. "

To repeat - " .... a factor the commission did not examine. " 


The Pentagon report was supplemental to the Financial Crisis Inquiry Board - after the fact.

It stated that the board had failed to look at this possibility and provided ample evidence that an "outside force" was a factor, above and beyond sub-primes, economic downturn and consumer debt.

Turns out the "outside force" happened to be some of the biggest campaign contributors in the U.S., oops, better shuffle that report off to the archives and hope the public forgets.

It concluded that excessive manipulation in oil futures, timed at the onset of a market decline exacerbated what would have been a substantially lesser market decline.

Not one phrase stating "not likely".

This is why I said you're just going contrary for the sake o fit.

We could go back and forth forever.  There's no point.  You keep siding with conspiracy theories, fringe opinions, and government-regulated markets, and I'll keep siding with the preponderence of evidence and relatively free markets. 

The Pentagon did not use the term "likely," however, they clearly contributed the crash of 08 to other factors in their final report.  So they said the crash was caused by other factors and that the idea that it was terrorists was only possible.  So what I said was true.

And you making statements like, "TBTF banks now hold $228 Trillion in leveraged derivatives," show you don't know what you are talking about.

I'm done.  There is no point in arguing with people who obviously don't know what they are talking about.