Author Topic: US CFTC goes after evil commodity "speculators"  (Read 2532 times)

Offline Mr. Bill

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US CFTC goes after evil commodity "speculators"
« on: September 02, 2009, 05:26:45 PM »
Several articles here:

BusinessWeek, 8/26/09: New Hurdles Loom for Commodities ETFs
Edited for Fair Use compliance by Mr. Bill
Quote
...Commodity ETFs and notes have to buy more underlying commodity futures contracts in order to be able to issue additional shares—and there's growing concern at the Commodity Futures Trading Commission (CFTC) that the deluge of money pouring into these ETFs and ETNs from retail investors may be distorting market prices. ...

Given that the CFTC isn't targeting ETFs per se, but wants to remove all speculators—anyone not hedging a physical position—from the commodities market, it's fair to assume that position limits would also have consequences for traditional mutual funds...
(emphasis added)

IndexUniverse.com, 8/26/09: What’s Next For Commodity ETFs?
Edited for Fair Use compliance by Mr. Bill
Quote
...the longer federal authorities take to decide whether to place limits on commodity investments, the more likely it becomes that a greater number of ETPs will be forced to act like close-end funds. ...

Prime candidates some advisers and institutional money managers are putting on their watch lists right now include: The United States Heating Oil Fund (NYSEArca: UHN); the United States Oil Fund (NYSEArca: USO) and the PowerShares DB Energy Fund (NYSEArca: DBE).

Further down the line, there is even speculation that the SPDR Gold Shares (NYSEArca: GLD) and the iShares Silver Trust (NYSEArca: SLV) may come under scrutiny by the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission....
(emphasis added)

Regarding "revoking exemptions to the creation of position limits": CFTC rules limit how much control one invetsment company can have in a commodities market.  The two named funds had received exemptions to these limits, but they have now been revoked.  Which means they will have to either downsize, or will need to do some tricky transactions to get around the rules.  (Disclosure: I own a little of one of these funds.)

Forbes, 8/28/09: Speculators Drive Up Oil Prices
Edited for Fair Use compliance by Mr. Bill
Quote
...A new study by Rice University says that yes, indeed, unchecked short-term price speculation is to blame for excessive price volatility over the past two years and that traders drive up prices that eventually reach U.S. consumers while driving down the value of the dollar....

But the real threat stems from the correlation between oil's price and the dollar's value. Rising oil prices increase the U.S. trade deficit, which weakens the dollar and drives oil prices, and the currencies of oil producing nations, even higher....
(emphasis added)

So it's speculators (and not the Fed's printing presses) who are responsible for the drop in the dollar's value and the increase in prices.  Right.

Heads up.
« Last Edit: September 06, 2010, 04:50:02 PM by Mr. Bill »

Offline evilphish

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Re: US CFTC goes after evil commodity "speculators"
« Reply #1 on: September 03, 2009, 04:32:05 AM »
Quote
So it's speculators (and not the Fed's printing presses) who are responsible for the drop in the dollar's value and the increase in prices.  Right.

they got to get the media machine primed so the sheep are distracted in 2010

Offline Mr. Bill

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Re: US CFTC goes after evil commodity "speculators"
« Reply #2 on: September 03, 2009, 07:45:24 AM »
they got to get the media machine primed so the sheep are distracted in 2010

That's the way I see it.  But they're also gearing up to demonize anyone who invests in commodities that go up in price hold their value as the dollar collapses.  I'm not sure how far this might go -- sorta depends on how gullible the general public is.  But I wouldn't be surprised, in a year or two, to hear proposals for a "windfall profits tax" on some investments.

Offline Stein

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Re: US CFTC goes after evil commodity "speculators"
« Reply #3 on: September 06, 2009, 07:10:20 PM »
Of course, the Federal Reserve buying MBS to drive down interest rates isn't speculation.  Neither is the Plunge Protection Team.

What a joke, everybody is wearing a black hat and pointing fingers.

Offline Mr. Bill

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Re: US CFTC goes after evil commodity "speculators"
« Reply #4 on: October 19, 2011, 01:35:06 PM »
Update: the CFTC has finalized some rules restricting large investments in commodity futures and swaps for 28 physical commodities (Corn, Oats, Soybeans, Soybean Meal, Soybean Oil, Wheat, Cotton, Hard Winter Wheat, Hard Red Spring Wheat, Milk, Feeder Cattle, Lean Hog, Live Cattle, Rough Rice, Cocoa, Coffee, Frozen Concentrated Orange Juice, Sugar [No. 11 & No. 16], Natural Gas, Sweet Light Crude, Gasoline Blendstock, Heating Oil, Copper, Gold, Silver, Palladium, Platinum).

CFTCLaw: CFTC Finalizes Position Limits
Quote
...The position limits are divided into two types: spot-month, and non-spot-month. The spot-month position limits will be set at 25% of deliverable supply. These are to be applied separately for physically-delivered contracts and cash-settled contracts in the same commodity. ...

Non-spot-moth position limits will be set using the 10/2.5% formula. A single trader can hold 10% of the contract’s first 25,000 of open interest, and 2.5% thereafter. ...

Financial Times: CFTC push on speculators faces legal threats
Quote
...“What is the commission’s working definition of excessive speculation, and what criteria do we rely on to determine what speculation becomes excessive?” said Scott O’Malia, a commissioner at the Commodity Futures Trading Commission, grilling agency bureaucrats.

“We don’t particularly have a working definition,” replied Stephen Sherrod, a CFTC official. ...

CNNMoney: Will new rules lead to oil and silver hoarding?
Quote
...The problem is, according to futures analysts, if speculators aren't allowed to buy the futures, they'll buy the physical commodity instead. ...

Why would they do so? In a financial crisis, large traders will often want to buy futures as a hedge against the dollar plunging or the euro falling apart. Being unable to buy as much as they can on the futures market will just shift them to physicals, exacerbating a crisis and even keeping a lid on contrarian bets that would push prices lower. ...

Offline cheryl1

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Re: US CFTC goes after evil commodity "speculators"
« Reply #5 on: October 22, 2011, 10:41:14 AM »
I'm new to commodity trading, but if the speculators had to buy the physical item, wouldn't that drive most of them out of the market?

Offline Mr. Bill

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Re: US CFTC goes after evil commodity "speculators"
« Reply #6 on: October 22, 2011, 12:17:49 PM »
I'm new to commodity trading, but if the speculators had to buy the physical item, wouldn't that drive most of them out of the market?

I don't know.  I suppose it depends on the commodity, and on the speculator.  There's only so much wheat and cattle you can stockpile conveniently, but precious metals would be easier.

I'm also thinking that there are big investors who would have the ability to create a market bubble for some physical commodities, with the intent of profiting before the bubble collapses.