Redstate

By ntrepid Posted in Miscellanea — Comments (2) / Email this page » / Leave a comment »

Courtesy of Merriam-Webster: SPECULATE … 2 : to assume a business risk in hope of a gain…

THE SHORT VERSION:

It seems to me that many in the media are choosing their words very carefully so as to make truthful claims that “it’s not the speculators” but in a way that really doesn’t seem to be saying “free market forces are in play” with today’s oil situation.

It may just be me and my ever increasing cynical perception of all things media but statements from even usually trusted personalities are coming across with a near-Clintonian vibe these days and I don’t like it one bit.

THE SLIGHTLY LONGER VERSION:

I will freely admit upfront that I could never be mistaken for a financial or investing expert of any kind and, to make it worse, I am evidently a slow learner. In this case however, I do try to keep up with Blackhedd here as well as another trusted voice in my little corner of the world, Mr. Ed Wallace (here and here…and worth listening to also).

Being a non-expert, information like this from Blackhedd earlier this week sure raises an eyebrow at this keyboard:

But it turns out that for a handful of reasons, an unknown but certainly very large amount of crude-oil trading manages to escape these regulations. A lot of trading goes through the London Intercontinental Exchange (“ICE”), where it doesn’t get reported to the CFTC. And a lot of it isn’t in the form of futures contracts at all, but rather in over-the-counter swaps contracts, that are essentially legal agreements made between hedge funds and large banks or Wall Street firms, and that effectively circumvent the position limits on normal trading.

Hmmm. Unreported over-the-counter “swap contracts”. Nothing out of the ordinary here, just keep moving along. (And is that “essentially legal” contracts or essentially “legal contracts”…just wondering).

Now, I’m sure this is all perfectly legitimate and an acceptable practice in the world of futures trading but it does make one wonder: How are essentially legal swap contracts booked? Are they essentially the same as futures contracts or not? Are they the same price? Can they be used to exert upward pressure on commodity prices at a fraction of the cost of true futures contracts? Can they be used to essentially take all risk out of legitimate futures contracts?

If so, then these “players” would (by definition) no longer be “speculators” and the sometimes strained, nuanced, and usually condescending protestations and diatribes by various pundits that “it’s not the speculators” would be absolutely true. Unfortunately, that wouldn’t make me feel any better.

Also from Blackhedd:

Several days ago, the current CFTC commissioner announced stricter position limits and reporting requirements for US accounts trading crude oil to take effect in 120 days, even for accounts trading in London.

Hooray! The big, sweet hammer of justice is…going to stroll into town in four months. Do you suppose that the “players” may figure out a way to play from non-US accounts or in markets other than London by mid-October.

In all seriousness, there seems to be a resistance in the media to just spell out in some detail for us commoners just what mechanisms are being worked here and how they are or are not driving the oil market. Instead, they seem determined to just swing a shiny object if front of our eyes an repeat “it’s not the speculators” over and over again. I keep getting the feeling that I should be insulted but I’m just not smart enough on the subject (yet) to fully take that step. Any assistance would be greatly appreciated.

Ntrepid
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