Let’s Shoot the Speculators!

Know why McCain wants to distance himself from former Senator Phil Gramm? It's not because of Gramm's obnoxious remarks calling Americans "a nation of whiners" who are in "a mental recession." Those remarks were so ascerbic that they may've been made just to give McCain an excuse to distance himself from Gramm. This issue is a lot deeper than it looks on the surface.

When Gramm was a Senator he was Chairman of the Banking Committee. He pushed through the legislation known as the "Enron Loophole." This loophole allowed US investment banks to bypass Federal regulations governing futures trading, and is the reason why investment banks were able to falsely inflate the prices of oil, wheat, corn and other commodities through massive futures trading, causing your costs of gas, heating oil and food to go through the roof.

Gramm also created the Gramm-Leach-Biley Act, which got rid of the laws that seperate banking, insurance and brokerage activities in America. The Gramm Act was touted as a new way to protect consumer privacy, but the real meat on the Act's bones was banking deregulation. Essentially, this Act did away with laws written after the Great Depression to protect us from another Wall Street/Banking Industry collapse. That's right, Gramm stripped the system of it's safe guards nine years ago, and guess what? The value of the dollar has nose-dived, four major economic institutions have failed, Wall Street is unstable, and we are in a worsening recession.

Notably, the US investment banks that gained the most from the Enron Loophole and from the Gramm Act contributed more than a million dollars to Gramm's campaign.

Currently Gramm is Vice Chairman of UBS, the Swiss Bank that came up with the idea of "death bonds." Worse, though, UBS is involved in a scam where they sold auction rate securities to American customers. Auction rate securities are supposed to be as safe as cash, but the way UBS did it, the fees garnished by their in-house investment bankers were intentionally higher than the return on the securities, ripping off their American customers. The Massachusetts Attorney General has already filed charges against UBS, and private brokers world-wide have dropped UBS stock. UBS is forecasted to lose 82.91% of it's value in 2008. We are talking about the corporate bank where Gramm is Vice Chairman. Looking at his track record there and at the havoc he has wrought on the US economy through the Senate Banking Committee, it's clear that Gramm is a either criminal or grossly incompetent.

Now McCain wants nothing to do with Gramm, wants us to forget Gramm has been a key player on McCain's team. Gramm was McCain's campaign CO-CHAIR and LEADING ECONOMIC ADVISOR. Previously, McCain had said that he planned to appoint Gramm as SECRETARY OF THE TREASURY.

With Gramm as McCain's leading economic advisor, now you know why economists and analysts say that McCain's economic policy plans are untenable.

The flaw in the reasoning of this article is the "demand shock" concept. Yes, China has been consuming vast amounts of oil.

Michael Masters of Master Capital Management (a global investment manager) testified before the Senate Committee on Homeland Security & Government Affairs a couple of weeks ago. Quotes from his testimony:

"Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase. In the popular press the explanation given for rising oil prices is the increased demand from China. According to the DOE, China's demand for petroleum has increased in the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. Over the same five year period, Index Speculators' demand for petroleum futures has increased by 848 million barrels. THE INCREASE IN DEMAND FROM INDEX SPECULATORS IS ALMOST EQUAL TO THE INCREASE IN DEMAND FROM CHINA. Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding EIGHT TIMES as much oil to their own stockpile as the US Government has added to the Strategic Petroleum Reserve over the last five years."

"The Senate has asked the question "Are Institutional Investors contributing to food and energy price inflation?" And my unequivocal answer is "YES." In this testimony I will explain that investment banks are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action..."

The US Commodity Futures Trading Commission is ASLEEP AT THE WHEEL. They're supposed to be protecting us from these kinds of abuses, but Phil Gramm created the "Enron Loophole" a loopholes in the CFTC regulations that you can drive a truck through. An oil truck, that is.

Links to Masters' Senate testimony, and 2 articles:
http://hsgac.senate.gov/public/_files/052008Masters.pdf
http://www.informationclearinghouse.info/article20011.htm
http://globalresearch.ca/index.php?context=va&aid=9138

As meat and poultry consumption rises in Asia with increased incomes, a greater demand is triggered for corn and soybeans to feed beef, pork, and poultry. Holding all factors constant, projections indicate that 120 million metric tons more of pork and poultry will be needed by 2030. This means 110 million metric tons more of soybean meal, 140 million metric tons of soybeans, and 62 million hectares of land to grow these additional crops. China now consumes more poultry than the United States and is projected to consume 40 percent more poultry than the United States by 2030.

We can sit here and let the politicians point fingers at speculators, but it is the politicians that should be charged with neglecting the finite nature of our resources. Who is the largest single user of oil in the world? The US Department of defense. I'll admit that speculators have contributed to a small portion of the price increase, but can you blame them for not trusting the greenback? If anything the government is responsible for failed fiscal policy that encourages people to put money in things like commodities that store value when they mistrust the dollar. Fiat money is only as good as its issuer......

Congress is just delaying the inevitable by placing blame on speculators. We are running fast to stay in place in terms of oil production, we need to look for alternate resources or let the price rise be the controller of consumption habits. I guess on a positive not, we are not Zimbabwe

Know why McCain wants to distance himself from former Senator Phil Gramm? It is not just because of Gramm's recent obnoxious remarks calling Americans "a nation of whiners" and that unemployed Americans are in "a mental recession." In fact, those remarks were so obnoxious that I wonder if they were engineered just to provide McCain an excuse for publicly distancing himself from Gramm. This issue is a lot deeper than it looks on the surface.

When Gramm was a Senator he was chair of the Committee on Banking, and in that capacity he was able to push through the legislation now known as the "Enron Loophole." This loophole allowed US investment banks to bypass the Federal regulations governing futures trading, and is the reason why the investment banks were able to falsely inflate the prices of oil, wheat, corn and other commodities through massive futures trading, causing your costs of gas, heating oil and food to go through the roof.

Gramm was a member of McCain's campaign team, but now Gramms' name is turning to mud. In addition to the Enron loophole, Gramm pushed through the Gramm-Leach-Biley Act in 1999, which got rid of the laws that seperate banking, insurance and brokerage activities in America. Essentially, this Act did away with all of the good laws written after the Great Depression to protect us from another Wall Street/Banking Industry collapse. That's right, Gramm stripped the system of it's safe guards nine years ago, and guess what? The value of the dollar has nose-dived, Wall Street is highly unstable, and we are in the midst of a recession.

Now you could say that this is not Gramm's fault, that he didn't know what the outcome of his actions would be. However, it turns out that the same investment banks that benefited from the Enron loophole and from the Gramm Act gave more than a million dollars to Gramm's campaign. Uh oh. A Congressional hearing is going to be convened to investigate this. And McCain wants to have noting to do with Gramm, wants us to forget that Gramm has been a key player on McCain's campaign team. Gramm was McCain's campaign CO-CHAIR and LEADING ECONOMIC ADVISER.

With Gramm in the driver's seat as his leading economic adviser, now you know why economists and analysts are saying that McCain's economic policy plans are untenable.

Mr. Samuelson is wrong. Go to;

http://www.star-telegram.com/ed_wallace/story/659081.html

and you will learn how we are being cheated by commodity speculators in the futures markets.

Mr. Samuelson and other defenders of specultion and the market decline to address the underlying causes for market activity and price rises beyond the standard reason of resource scarcity. The genius of Enron and the energy traders of the not so recent past was in creating the illusion of market activity. The Enron and other traders churned the supply of energy by phony purchases and trades to make it appear there was an increase in demand for a finite resource. No short term indicators, such as supplies of refined gasoline, point to shortage.

The genius of the market is to direct dollars to those activities that create the highest level of return for an investor. Could it simply be that more middlemen investor dollars are chasing the same amount of a finite resource? Perhaps those dollars were the same ones that chased our mortgage backed securities a few months ago? Perhaps it wouldn't be a bad thing to require that persons that brokered speculation in the market also owned (not leased) the capacity to accept delivery of a certain percentage of the resource they purchased as a future.

As for the need for more domestic and offshore drilling--wasn't one of the issues with ANWR that the oil would go to Asia and not to the lower 48 because of the ecomomics of shipping and refining? What stops the new oil and gas we produce from going to those overseas consumers? Meanwhile, the environmental costs stay on our shores. I'm not opposed to new drilling but I'm a realist that the new oil we produce won't have an American flag pasted on it to decrease our domestic prices. There is a market to feed, after all.

Did you know that if McCain is elected you will have to pay income tax on the value of the medical insurance that your employer gives you? Worse still, he is offering a tax break for people who pay their own insurance, BUT only $2,500 for individuals and $5,000 for families.

Let's say you have a family of four. Your insurance policy costs would be at least $1,500-2,500 per month under a self-pay plan, which cost more than employer group plans. So, you pay $18,000 -$30,000 per year for insurance, and you get to deduct only $5,000 of that. If you paid $25,000 for you insurance, you would be out of pocket $20,000 per year. This is FAR WORSE than the current system, where if you are self employed you can deduct 100% of you medical insurance costs.

So, if you're not self employed, you would stick with your Employer's plan. Employer plans for a family of four have a value of $900-$1,500 per month totaling 10,800-$18,000 per year. Surprise! On April 15th, you owe tax on all of that as INCOME to you. Say your bracket is 25%, and the value of your Employer medical plan is $14,000. You will OWE THE IRS an additional $3,500, and that's ON TOP of whatever monthly premium you already pay to your employer for your insurance.

Many analysts say that McCain's new rules would encourage employers to stop offering health benefits. If that happened, then far fewer Americans would be insured than are insured today, because what family of four can afford $18,000-$30,000 out of pocket per year for self-pay health insurance?

Furthermore, McCain's plan does not require insurance companies to cover pre-existing conditions of people who self-pay their insurance. People under employer group plans have all of their pre-existing conditions covered. This is a hugely unfair aspect of the current system. Insurance companies can afford to cover the pre-existing conditions of the much larger pool of people with group insurance, but they refuse to pay the pre-existing conditions on the smaller pool of self-pay customers. They have been allowed to price gouge the self-pay customers, which is a form of market manipulation that should be illegal.

So let's say one of your kids had diabetes and you have high blood pressure, then your employer stops offering insurance. You now have to buy your own, but you and your child are INELIGIBLE due to pre-existing conditions. Oh, yeah, they will let you buy the insurance, but you can't use it for any pre-existing condition until you have paid on time every month for two years. And you know what happens at one year and 11 months? You get a letter saying your policy has been cancelled. I have many patients this has happened to.

McCain's plan SUCKS.

It does nothing to help middle class working Americans afford or obtain medical insurance. In fact, it makes the current system WORSE.

You can call it speculation, but it is currency seeking refuge from inflation in commodities instead of the traditional precious metals. Speculation is dollars looking for bubbles to buy and then sell before the bubble pops . Hence, if you combine the dollars hunting bubbles with the scared dollars seeking refuge from devaluation, then you see what we have.
Let's name it specufear, or fearculation. A free market deal. No controls. Goes wild. Try to control it, then it gets constipated. That creates another problem. Every few years our economy experiences a new trauma. Welcome to the new trauma. Wait a while and it will level off.

Commodity markets are in the news more than I???ve ever seen. And that???s both good and bad. Good that investors are aware of commodity markets and that they should consider including them in their portfolios, be it as an investment or as a speculative venture. Bad that some of the commentators???and some of our elected officials???clearly do not understand the purpose, function or workings of the commodity futures markets.

Speculators are a vital element in futures markets, supplying both liquidity and a counterbalance to the other main group of participants???commercial users who use futures to transfer their inherent business risk. And, when taking futures positions, both groups are doing nothing more than expressing an opinion about where they think the price of a certain commodity, such as crude oil or the S&P 500, will be when that futures contract expires.

Commodity futures markets are thermometers, not the fever that makes the temperature rise or fall.

This article is one of the best I have seen on this subject. Finally, someone who knows what he is talking about.

Mark Sachs
President
Lind-Waldock
www.letstalkfutures.com

If demand is exceeding supply, why aren't there any lines at the gas pumps? And back in the 70s when supply came crashing almost to a halt, prices didn't shoot up immediately as they have this year. Supply side economists always think market forces explain everything, but it's never that simple. Speculation must be a factor as it was in the late 90s tech bubble, and again in the recent housing bubble. There's no other rational
explanation for the outof control oil prices, mou

If demand is exceeding supply, why aren't there any lines at the gas pumps? And back in the 70s when supply came crashing almost to a halt, prices didn't shoot up immediately as they have this year. Supply side economists always think market forces explain everything, but it's never that simple. Speculation must be a factor as it was in the late 90s tech bubble, and again in the recent housing bubble. There's no other rational
explanation for the outof control oil prices, mou

Mr. Samuelson nails it this time... until the closing paragraph. When you look at the actual numbers, it is evident that the bogeyman of environmental regulation is not to blame for oil prices (i.e. restrictions in off-shore and ANWR drilling). In fact, just last week it became public knowledge that less than 1/3 of the off-shore area ALREADY leased to oil companies is currently being developed by them. Until the oil companies are maximizing development of the areas they already lease, no argument can be made that opening more areas would decrease prices or increase supplies. Why, Mr. Samuelson, after a well written and impartial commentary would you weaken it with this politicized and easily refutable statement?

Well lets close the Enron,Dark Markets and Swap loopholes to find out of your right.

Paul Krugman, who is a far better economist than Samuelson can even dream of being, would tend to agree with Samuelson on this one. His major point is that inventories have not increased, and so there consequently does not appear to be hoarding.

However, there are several points worthy of consideration, despite Samuelson's and the poster "qcowns" sem--religious fervor that this is a case of supply and demand.

1. Nobody actually knows what current supply is, and (also) nobody actually knows what demand is. Therefore, such a statement is one of faith, rather than based in empirical miceo-economic analysis.

Is there a god? Yes, I BELIEVE there is. Does this represent physics, or any other empirical discipline?

No. It does not.

2. The second point is that it is generally believed hat oil supply suffers from short term inelasticity. This means that, just because twice as much money wishes to purchase oil this week, as compared to last week, there prbably won't even be twice as much oil a year from you. This means, that if more people want to buy oil, as a safe investment, the price will go up, even if more oil is not actually being used.

3. The thid point is that there was --approximately --$30 trillion dollars in capital in the real estate market. A great deal of this capital is fleeing real estate. It is not implausible that it would see oil as "safer".

As I said, Samuelson may not be wrong, since, perhaps almost by accident, this time he happens to agree with a far better economist.

However, there is no reason to think he has any empirical basis for his statements about supply and demand. hey are the type of blovations he likes to make in order to make himself feel better.

I glad to finally see a bit of sense in the financial press. Of course the problem isn't "speculators". The oil and most raw material markets have been out of supply-demand balance for several years now. Higher prices are the result. That's the way it is supposed to work. Higher prices cut demand and stimulate supply.

Oil is a special case since it has become so politicized. You can't just go out and drill for more oil. I personally think that the Saudis are close to their production limits in any case, despite all the chin wagging. Oil is most likely over priced here but I think the trend is inexorably up.

As for "Oil Speculators", all WTIC contracts are settled for cash, not delivery. Traders are not pulling oil off the market. They are simply making cash bets amongst themselves. Physical oil is being bought and sold among producers and users. That's where the physical price is set.

If you want to find someone to blame, look at the government. The mismanagement of the dollar has added a substantial amount to our oil tab. Since 2000 oil is up just over 2.5X in Euros and up over 5X in dollars. If Washington wasn't so gung-ho to destroy the dollar oil would be $75 here, not $140. Throw in the fact that most energy supplies world-wide are now political tools and you get the current situation. The market didn't fail, it has been bound, gagged and locked in a closet.

Leave it to Robert Samuelson to misrepresent the truth and tell the half of a story that justifies his point.

Just this week, this very same week, I saw Obama on CNN saying that only 30% of oil prices are being influenced by speculators. McCain, on the other hand is indeed playing the it's-the-boogie-man game, so don't divide the blame equally among "the candidates"; one of them is being much more straight-forward than the other.

Something no one has talked much about is the Saudis' refusal to increase the supply of oil when prices are up the roof. Hmmmm, that's odd, isn't it? In fact, they have just promised Bush (after he asked, hat in hand TWICE for the supply to be increased) that they would increase production. Are we supposed to think the market was in balance in the last few months, as they alleged?

OPEC is acting like a cartel and that is something the market cannot correct itself because, after all, it is a market failure. This country has no viable energy plan (two years after Bush said "we were addicted to oil"), there is ZERO leadership in energy conservation and as you said, that ethanol is misusing the resources of the market.

So quit the condescending half-truths. One candidate has a plan for greener energy while the other is flip-flapping on ocean floor oil drilling TWO MONTHS after he said he was against it. Get it right for once, Samuelson.