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Crude Oil Futures Speculator Crooks Drive Up Oil Prices and Cause Financial Crisis

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Guest Enron Ex

American consumers will take little comfort from an explanation that they are being protected from manipulation and excessive speculation driving up gas prices –not by U.S. regulators -- but by the Dubai government‘s oversight of trading of the U.S. delivered WTI contract on the DME‘s U.S. trading terminals.

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Guest CrazyWorld

Dubai this, Dubai that. I am sick of all the stories about that place. They support Iran, so they obviously do not care that much about us. Why do we let them control us? What is DME?

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Guest Pass Gas

Thanks for the information. I am going to post this on my blog. I want to add this bit of info about the WTI Contract.

 

The ICE WTI Crude Futures contract was introduced on February 3, 2006.

 

ICE offers a fully-electronic platform and is the world’s leading electronic energy marketplace. The ICE WTI Crude Futures contract joins the global benchmark Brent Crude futures contract to provide traders, hedgers and speculators with the world’s leading crude oil contracts on a single electronic platform.

 

The ICE WTI Crude Futures contract is cash settled on a monthly basis against the prevailing market price for U.S. light sweet crude. The price is equal to the settlement price of the Light Sweet Crude Oil futures contract, in USD per barrel, as published by NYMEX for the month of production on the last trading day for the ICE WTI Crude Futures contract - as further detailed within the ICE Futures Regulations, including the relevant reference to the 2005 ISDA Commodity Definitions.

 

Marked-to-market by LCH.Clearnet on a daily basis, or as market conditions might require.

Up-to-date Margin Rates may be found by clicking on “ICE Futures Margin Circular” at

 

http://www.lchclearnet.com/risk_management/

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Guest R. David Gary

CFTC Conditions Foreign Access on Adoption of Position Limits on London Crude Oil Contract

Amended Foreign Access Relief Establishes New Standard

 

The Commodity Futures Trading Commission (CFTC or Commission) announced that Commission staff has amended the “no-action relief letter” under which ICE Futures Europe is permitted direct access to U.S. customers. The amended letter conditions direct access on ICE Futures Europe’s adoption of equivalent U.S. position limits and accountability levels on its West Texas Intermediary (WTI) crude oil contract, which is linked to the New York Mercantile Exchange crude oil contract.

 

In addition, pursuant to the amended letter, ICE Futures Europe will follow similar U.S. hedge exemption requirements and will report violations of any such provisions to the CFTC. This action also formalizes the recently-announced information-sharing arrangement between the CFTC and the U.K. Financial Services Authority by requiring ICE Futures Europe to provide the CFTC with detailed market information (equivalent to U.S. standards) for surveillance purposes, as a condition of direct access to U.S. customers. The CFTC will incorporate the foreign exchange’s data directly into the CFTC’s Commitments of Traders report, which is a weekly report categorizing traders and positions. Commission staff intends to apply these new foreign access conditions to any future requests for direct foreign access to U.S. customers for contracts that cash settle against those listed on any U.S. exchange. The revised Commission staff foreign access conditions must be satisfied by ICE Futures Europe within 120 days.

 

“These new conditions for foreign access will provide the CFTC with additional oversight tools to monitor linked contracts. This powerful combination of enhanced trading data and additional market controls will help the CFTC in its surveillance of regulated domestic exchanges, while preserving the important benefits of our international recognition program that has enabled proper global oversight during the last decade. This raises the bar for all future foreign access requests and will ensure uniform oversight of linked contracts,” said CFTC Acting Chairman Walt Lukken. “The Financial Services Authority, which has robust and appropriate requirements for the maintenance of market integrity and for the prevention of market abuse, has been and continues to be an invaluable partner as we work together to oversee our respective markets.”

 

In November 2006, the CFTC and the Financial Services Authority signed a ground-breaking Memorandum of Understanding (MOU) on market surveillance that provides for the sharing of large trader information with respect to linked contracts on a weekly basis and daily in the settlement week. In May 2008, the amount and quality of information under the earlier MOU was enhanced by, among other things, providing large trader information on a daily basis.

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Guest Luke

I got this video email sent to me.

 

McCain, gas prices and the Enron loophole

 

June 18: A Countdown Special Report on how John McCain's chief economic advisor and others in his campaign helped create and defend pivotal legislation that unleashed speculators to run up gas prices. I hope this is not true. I like John McCain.

 

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Guest Enron Ex

The National Emergency in the Petroleum Markets Authorizes to FTC to Move Faster

 

Instead of taking swift and decisive action to address the growing threat of fast rising crude oil, gasoline and heating oil prices, the FTC opted to employ a leisurely administrative route that, unless adjusted as suggested below, will mean that a rule governing investigation under the 2007 crude oil anti-manipulation legislation will not be in place until this coming fall at the earliest. Rather than issuing a proposed rule based on the model established by FERC in the natural gas markets, the FTC instituted an advanced notice of proposed rulemaking (ANOPR) with the comment period to close on June 6, 2008. The ANOPR is 39 pages long and it raises in a most highly academic fashion many of the issues long ago confronted and resolved in 2005-2006 by FERC in the natural gas context.

 

Moreover, picking up the signal that time is not of the essence, the American Petroleum Institute (API), represented by the Covington & Burling law firm, has already requested an extension of the June 6 ANOPR deadline, claiming that the issues are too difficult to resolve in anything less than a 90 period. If this extension were granted, the comment period for the ANOPR would not even end until late summer. At that juncture and pace, the FTC would then analyze the ANOPR comments before it even issued a proposed rule with its own [30] day comment period. Under this schedule (if not extended by further requests for more time), months would pass before the promulgation of the final rule at which time the FTC would only then begin its investigation.

 

To be sure, in the absence of a full blown emergency, agency rulemaking requires a notice and comment period on a proposed rule, with the discretion to precede the proposed rule with an ANOPR to flesh out novel issues in aid of developing the proposed rule. However, the Administrative Procedure Act provides critically important exceptions to these procedures in well defined exigent circumstances. For example, the APA specifically provides that the notice and comment requirements can be bypassed or short circuited when, ―the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. Therefore, when an agency faces emergencies or situations where delaying for notice and comment would seriously harm the public interest, the agency can promulgate a final rule without notice and comment, especially when the critical issues have already been resolved under an identical companion statute by another federal agency charged with the identical investigative mission in highly related markets and by comments received by the FTC pursuant to the FTC‘s existing ANOPR.

 

The present crude oil and gas price shocks presents precisely the circumstances for which the APA exception was intended. Sky rocketing oil, gasoline, and heating oil prices have placed a stranglehold on the American economy and every American consumer. George Soros recently warned that, if left unattended, the oil price crisis (which he views as being grounded in excessive speculation) will drag the United States into the most serious full blown recession since the end of World War II.

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Guest Enron Ex

In a recent hearing before the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce, the Ranking Member Joe Barton (R-TX) (who was the Committee Chair when the 2005 statute was passed) stated, ―I'm also disappointed to see that CFTC has challenged FERC's authority to investigate and pursue the energy market manipulators despite the Congress's explicit grant of authority to FERC in the Energy Policy Act of 2005.

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Guest Jim

Isn't it George Soros and his hedge fund buddies running up the price of oil?

 

Has he flat out denied that he has speculated in oil lately? Has anyone asked? How much more will these unregulated hedge funds manipulate the oil markets and inturn the stock market? The higher the gas prices the better the odds in getting Obama elected. Does Mr. Soros own shares in "green" companies? I wonder if green companies increase in value if oil prices increase? Isn't it safe to assume? How many people blame the high gasoline prices on Bush trying to make his buddies rich? Don't the hedge funds set the price of oil? I'd think it isn't the oil companies fault that crude oil is so high, since they don't set the price. The futures do. How much can the American people take with the high gasoline prices? Enough to elect Mr. Soros' man into office so the gas prices might go down?

 

The Wall Street Journal reported hedge fund operator John Paulson got a visit from Soros after Paulson had made about $4 billion betting on a housing collapse. Soros wanted to know how he had done it. Soros wouldn’t talk to the Journal about his meeting with Paulson.

 

Soros needs to ask a billionaire hedge fund guy like Paulson how he made his money, when Soros has been doing this for almost 40 years?

 

Is it possible Soros invited Paulson to become a member in one of his private billionaire clubs to help sway voters into voting for Obama in the fall elections?

 

According to numerous articles regarding the top ten earners in the Hedge Fund Market, the top five are:

 

1. John Paulson, Paulson & Co. ($3.7 billion)

2. George Soros, Soros Fund Management ($2.9 billion)

3. James Simons, Renaissance Technologies Corp. ($2.8 billion)

4. Philip Falcone , Harbinger Capital Partners ($1.7 billion)

5. Kenneth Griffin, Citadel Investment Group ($1.5 billion)

 

Should the top 5, who also happen to be the only ones making over a billion dollars be investigated?

 

Mr. Soros started moveon.org, and is a financial contributor to Obama's campaign.

 

"However, don't try to read any of his politics into his trades, he insists." Um-huh?

 

The world economy will get worse than the Carter years of the 1970's? Goldfinger has to get his man elected. Of course, the recovery will start towards the middle of Obama's presidency so he will look good as dramatic changes to the economy happen by the lowering of gasoline prices. Just in time for his re-election bid.

 

Did Soros screw with the economies of France, Russia plus he killed the Bank of England?

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I really like this discussion. Thanks for all the input Ex Enron. The CFTC just sent out a letter to ICE on June 17 I just transcribed:

 

Ms. Dee Blake

Director of Regulation

ICE Futures Europe

International House

1 St. Katherine's Way

London E1W 1UY, UK

 

Re: Amendment to No-Action Letter Issued to the International Petroleum Exchange of London (now ICE Futures Europe)

 

Dear Ms. Blake:

 

On November 12, 1999, the Division of Trading and Markets of the Commodity Futures Trading Commission (Commission or CFTC) granted to the International Petroleum Exchange of London (IPE) permission to make its electronic trading and order matching system, known as Energy Trading System II (ETS), available to IPE members in the United States. Specifically, the Division of Trading and Markets stated that it will not solely based upon IPE's failure to obtain contract market designation under Sections 5 and 5a of the Commodity Exchange Act (ACT), if: ( 1 ) IPE members who are registered with the Commission as futures commission merchants (FCM) or who are exempt from such registration pursuant to Rule 30.10 (Rule 30.10 Firms) submit orders from the United States customers for submission to ETS; and/or ( 3 ) IPE members who are registered with the Commission as FCMs or who are Rule 30.10 Firms accept orders through United States automated order routing systems from United States customers for submission to ETS. The November 12, 1999 IPE no-action letter was amended by the Division four times between July 26, 2002 and April 14, 2003 as trading contracts was transitioned from the ETS to the ICE Platform operated by Intercontinental Exhange, Inc., in Atlanta, Georgia and trading hours were extended (the November 12, 1999 Letter, together with its amendments, being hereinafter referred to as the "Prior No-Action Letters").

 

On January 17, 2006, ICE Futures Europe notified the Division of its intent to launch a West Texas Intermediate Light Sweet Crude Oil Futures Contract (WTI Contract) on February 3, 2006 that cash-settled on the price of a physically-settled Light Sweet Crude Oil Futures contract traded on the New York Mercantile Exchange (NYMEX) a U.S. designated contract market (DCM). The notification was provided pursuant to the Commission's Statement of Policy regarding the listing of new futures and option contracts by foreign exhanges that are operating electronic trading devices in the U.S. pursuant to a foreign terminal no-action letter. Subsequent to that notification, the Commission and the UK Financial Services Authority (FSA), ICE Futures Europe's regulatory authority, entered into a memorandum of understanding to share information with the goal of providing information to help detect and deter any attempts to manipulate the market. On April 12, 2006 ICE Futures Europe notified the Division of its intent to launch ICE Futures New York Harbour Heating Oil Futures Contract and the ICE Futures New York Harbour Unleaded Gasoline Blendstock (RBOB) Futures Contract on April 21, 2006 each of which is cash-settled on the price of physically-settled contracts traded on the NYMEX.

 

A foreign board of trade listing for trading a contract which settles on the price of a contract traded on a CFTC-regulated exchange raises very serious concerns for the Commission. Such linkages can create a single market for the subject contracts consisting of both the underlying contract at the CFTC-regulated exchange and the cash-settled "look-alike" contract traded on the foreign board of trade. In the absence of certain preventative measures at the foreign board of trade, the circumstance could compromise the Commission's ability to carry out its market surveillance responsibilities, as well as the integrity of prices established on CFTC-regulated exchanges. As you are also aware, and as stated in IPE November 12, 1999 noaction letter, "the Division retains the authority to condition further, modify, suspend, terminate, or otherwise restrict the terms of the no-action relief provided herein, in its discretion."

 

Accordingly, the Division is amending ICE Futures Europe;s no-action relief as described in the Prior No Action Letters by adding certain conditions with respect to any ICE Futures Europe contract which settles against any price, including the daily or final settlement price, of ( 1 ) a contract listed for trading on a DCM or derivatives transaction execution facility (DTEF), or ( 2 ) a contract listed for trading on an exempt commercial market (ECM) that has been determined to be a significant price discovery contract (collectively, "IFE Linked Contracts"). The purpose of these conditions is to ensure that ICE Futures Europe applies to any IFE Linked Contract comparable principles or requirements regarding the daily publication of trading information and the imposition of position limits or accountability levels for speculators as apply to the DCM, DTEF or ECM contract against which the IFE Linked Contract settles. The conditions will ensure that ICE Futures Europe provides the Commission with information regarding the extent of speculative and nonspeculative trading in IFE Linked Contracts that is comparable to the information provided to the Commission by DCMs, DTEFs or ECMs for publication of the Commitments of Traders Reports.

Those conditions are:

 

1. ICE Futures Europe will impose on IFE Linked Contracts, by rule or otherwise, position limits or position accountability levels (including related hedge exemption provisions) that are comparable to the existing position limits or position accountability levels (including related hedge exemption provisions) as adopted by ( i ) the DCM, DTEF or ECM for the contract against which the IFE Linked Contract settles or ( ii ) the DCM, DTEF, or ECM for a financially-settled equivalent of such contract;

 

2. ICE Futures Europe will inform the Commission in a quarterly report of any member that had positions in an IFE Linked Contract above the applicable ICE Futures position limit, whether a hedge exemption was granted, and if not, whether a disciplinary action was taken;

 

3. ICE Futures Europe will publish daily trading information (e.g., settlement prices, volume, open interest, and opening and closing ranges) that is comparable to the daily trading information published by the DCM, DTEF or ECM for the contract against which ICE Futures Europe contract settles; and

 

4. ICE Futures Europe will provide to the CTFC, through FSA, a daily report of larger trader positions in each IFE Linked Contract for all contract months in a form and manner that;

  • can be fully integrated into the CFTC's market serveillance systems, including full identification of each position's beneficial owner comparable to the reporting that is provided by the DCM, DTEF, or ECM;
  • can, subject to the Memorandum of Understanding between CFTC and FSA, be fully integrated into the CFTC's Commitments of Traders Report, including appropriate categorization of traders and their postions.

 

The Commision recognizes the need for ICE Futures Europe to adopt rules and implement system changes to implement the foregoing, and to take such actions in consultation with the FSA; in addition, the Commission understands that future rule and system changes are subject to approval by the FSA. Subject to ICE Futures Europe's satisfaction of these conditions within 120 days of the date of this letter and continuing to satisfy the other terms and conditions included in the Prior No-Action Letters, the Division hereby confirms that it will not recommend that the Commission institute enforcement action against ICE Futures Europe or its members solely based upon ICE Futures Europe's failure to seek contract market designation or registration as a DTEF under Sections 5 and 5a of the Act. The Division's no-action position does not extend to any other provision of the Act, any other Commission regulations or orders, or to any futures assocation rules and does not excuse ICE Futures Europe or its members from compliance with any applicable requirements thereunder.

 

The no-action position taken herein is taken by the Division only and does not necessarily reflect the views of the Commission or any other unit or member of the Commission's staff. Finally, as with all no-action letters, the Division retains the authority to condition further, modify, suspend, terminate, or otherwise restrict the terms of the no-action relief provided herein, in its discretion.

 

If you have any questions regarding this correspondence, please contact David Van Wagner, Chief Counsel, at (202) 418-5481, or Duane C. Andresen, Senior Special Counsel, at (202) 418-5492

 

Very truly yours,

 

Richard A. Shilts, Director

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Guest Enron Ex

I read that. I am just going to keep posting until I get tired again today. I see that over 300 people have seen this page. But, you should link it to other web sites to get more people looking at this. I don't have the time or I would. I appreciate you not deleting my posts.

 

Testimony of

Michael W. Masters

Managing Member / Portfolio Manager

Masters Capital Management, LLC

before the

Committee on Homeland Security and Governmental Affairs

United States Senate

May 20, 2008

 

Good morning and thank you, Mr. Chairman and Members of the Committee, for the invitation to speak to you today. This is a topic that I care deeply about, and I appreciate the chance to share what I have discovered.

 

I have been successfully managing a long-short equity hedge fund for over 12 years and I have extensive contacts on Wall Street and within the hedge fund community. Itʼs important that you know that I am not currently involved in trading the commodities futures markets. I am not representing any corporate, financial, or lobby organizations. I am speaking with you today as a concerned citizen whose professional background has given me insight into a situation that I believe is negatively affecting the U.S. economy. While some in my profession might be disappointed that I am presenting this testimony to Congress, I feel that it is the right thing to do.

 

You have 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 Institutional Investors 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.

 

Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history.1 We have seen commodity price spikes occur in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is ample: there are no lines at the gas pump and there is plenty of food on the shelves.

 

If supply is adequate - as has been shown by others who have testified before this committee - and prices are still rising, then demand must be increasing. But how do you explain a continuing increase in demand when commodity prices have doubled or tripled in the last 5 years?

 

What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.

 

These parties, who I call Index Speculators, allocate a portion of their portfolios to “investments” in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as “Index” Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices – the Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones - AIG Commodity Index.

 

I’d like to provide a little background on how this new category of “investors” came to exist.

 

In the early part of this decade, some institutional investors who suffered as a result of the severe equity bear market of 2000-2002, began to look to the commodity futures market as a potential new “asset class” suitable for institutional investment. While the commodities markets have always had some speculators, never before had major investment institutions seriously considered the commodities futures markets as viable for larger scale investment programs. Commodities looked attractive because they have historically been “uncorrelated,” meaning they trade inversely to fixed income and equity portfolios. Mainline financial industry consultants, who advised large institutions onportfolio allocations, suggested for the first time that investors could “buy and hold”

commodities futures, just like investors previously had done with stocks and bonds.

 

Index Speculator Demand Is Driving Prices Higher

 

Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase. Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008, and the prices of the 25 commodities that compose these indices have risen by an average of 183% in those five years!

 

According to the CFTC and spot market participants, commodities futures prices are the benchmark for the prices of actual physical commodities, so when Index Speculators drive futures prices higher, the effects are felt immediately in spot prices and the real economy. So there is a direct link between commodities futures prices and the prices your constituents are paying for essential goods.

 

In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over 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 Speculatorsʼ 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!

 

In fact, 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 United States has added to the Strategic Petroleum Reserve over the last five years.

 

Index Speculator Demand Characteristics

 

Demand for futures contracts can only come from two sources: Physical Commodity Consumers and Speculators. Speculators include the Traditional Speculators who have always existed in the market, as well as Index Speculators. Five years ago, Index Speculators were a tiny fraction of the commodities futures markets. Today, in many commodities futures markets, they are the single largest force. The huge growth in their demand has gone virtually undetected by classically-trained economists who almost never analyze demand in futures markets.

 

Index Speculator demand is distinctly different from Traditional Speculator demand; it arises purely from portfolio allocation decisions. When an Institutional Investor decides to allocate 2% to commodities futures, for example, they come to the market with a set amount of money. They are not concerned with the price per unit; they will buy as many futures contracts as they need, at whatever price is necessary, until all of their money has been “put to work.” Their insensitivity to price multiplies their impact on commodity markets.

 

Furthermore, commodities futures markets are much smaller than the capital markets, so multi-billion-dollar allocations to commodities markets will have a far greater impact on prices. In 2004, the total value of futures contracts outstanding for all 25 index commodities amounted to only about $180 billion.1 Compare that with worldwide equity markets which totaled $44 trillion17, or over 240 times bigger. That year, Index Speculators poured $25 billion into these markets, an amount equivalent to 14% of the total market.

 

As money pours into the markets, two things happen concurrently: the markets expand and prices rise.

 

One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. Rising prices attract more Index Speculators, whose tendency is to increase their allocation as prices rise. So their profit-motivated demand for futures is the inverse of what you would expect from price-sensitive consumer behavior.

 

Prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year. That’s an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day. Doesn’t it seem likely that an increase in demand of this magnitude in the commodities futures

markets could go a long way in explaining the extraordinary commodities price increases in the beginning of 2008?

 

There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets.

 

It is easy to see now that traditional policy measures will not work to correct the problem created by Index Speculators, whose allocation decisions are made with little regard for the supply and demand fundamentals in the physical commodity markets. If OPEC supplies the markets with more oil, it will have little affect on Index Speculator demand for oil futures. If Americans reduce their demand through conservation measures like carpooling and using public transportation, it will have little affect on Institutional Investor demand for commodities futures.

 

Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.

 

Think about it this way: If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged.

 

Why is there not outrage over the fact that Americans must pay drastically more to feed their families, fuel their cars, and heat their homes?

 

Index Speculators provide no benefit to the futures markets and they inflict a tremendous cost upon society. Individually, these participants are not acting with malicious intent; collectively, however, their impact reaches into the wallets of every American consumer.

 

Is it necessary for the U.S. economy to suffer through yet another financial crisis created by new investment techniques, the consequences of which have once again been unforeseen by their Wall Street proponents?

 

The CFTC Has Invited Increased Speculation

 

When Congress passed the Commodity Exchange Act in 1936, they did so with the understanding that speculators should not be allowed to dominate the commodities futures markets. Unfortunately, the CFTC has taken deliberate steps to allow certain speculators virtually unlimited access to the commodities futures markets.

 

The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over-the-counter swaps transactions. This has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity index swaps, which 85-90% of them do, they face no speculative position limits.

 

In the CFTC’s classification scheme all Speculators accessing the futures markets through the Swaps Loophole are categorized as “Commercial” rather than “Non- Commercial.” The result is a gross distortion in data that effectively hides the full impact of Index Speculation.

 

Additionally, the CFTC has recently proposed that Index Speculators be exempt from all position limits, thereby throwing the door open for unlimited Index Speculator “investment.” The CFTC has even gone so far as to issue press releases on their website touting studies they commissioned showing that commodities futures make good additions to Institutional Investors’ portfolios.

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Guest Tom C. Willis

People are investing in the price of crude oil like they’re investing in the price of IBM and McDonald’s with their 401(k)s. It’s a sophisticated form of hoarding. The index funds are not responsive to price. Forget about the word speculation. Think more about investing. The investing public has driven up the price of crude oil, gasoline, soybeans and corn.

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Guest Justin Kitsch

U.S. Senator Byron Dorgan (D-ND) introduced legislation designed to put downward pressure on gas prices by curbing the rampant speculation taking place in the energy futures markets.

 

Dorgan’s legislation, called the “End Oil Speculation Act of 2008” orders the Commodity Futures Trading Commission (CFTC) to use its emergency authority to crack down on the root cause of the recent surge in energy prices – those who drive oil and gas prices to record levels by engaging in excessive speculation. The legislation sets out the specific requirements to force the CFTC to shut down the excess speculation. The legislation:

 

* Requires the CFTC to classify all trades as either “legitimate hedge trading” by commercial producers and purchasers of actual physical petroleum products, or, all other trades that would be classified as “non-legitimate hedge trades;

 

* Require the CFTC to order an increase in margin requirements to 25% for the trades classified as non-legitimate hedge trades;

 

* Requires the CFTC to revoke or modify all prior actions or decisions that prevent the CFTC from protecting legitimate hedge trades and discouraging speculative trades;

 

* Requires the CFTC to convene an international working group of regulators to ensure the protection of petroleum futures market from excessive speculation and world wide forum shopping;

 

“This bubble of excess speculation in the energy futures market has driven up oil and gas prices well beyond that which is justified by supply and demand,” said Dorgan. “While these speculators are making money hand over fist, American families are suffering from record prices at the gas pump. To help our economy and bring some relief to American drivers, we must wring this speculation out of the market.”

 

“There is a 50 percent margin requirement for people when purchasing stocks, but only a five to seven percent requirement for those speculating in energy futures,” said Dorgan. “These speculators are using money they don’t have to buy oil they’ll never use, making money on both ends, and the American public gets stuck with the bill every time we fill up our tank.”

 

Dorgan’s legislation orders the CFTC to use all of its existing authority to investigate, regulate, monitor, report, and take immediate action against those who engage in excessive speculation.

 

“We are trading 20 times more oil than we take delivery of each day. The world uses about 86 million barrels of oil per day, yet trades approximately 1.5 billion barrels of oil per day,” said Dorgan. “This casino-like speculation is causing sky-high gas prices that hurt our economy and our families. The steep run up in prices is damaging our economy and is especially damaging to those who live in large rural states like North Dakota.”

 

“The price of fuel has reached crisis levels in this country, and there is no end in sight,” said Dorgan. “Immediate action is needed to reduce speculation and reduce energy costs in this country.”

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Guest Senator Maria Cantwell

On Thursday, U.S. Senators Maria Cantwell (D-WA), Sheldon Whitehouse (D-RI), Bernard Sanders (I-VT), and Bill Nelson (D-FL), were joined by Representatives Bart Stupak (D-MI-01), Chris Van Hollen (D-MD-08), and Rosa DeLauro (D-CT-03) and representatives from the airline and farming industries, and labor urging swift action to close a number of oil futures market loopholes that numerous experts have concluded are responsible for today’s unprecedented run-up of crude oil prices. Currently insufficient regulatory regimes governing the buying and selling of West Texas Intermediate crude oil future contracts and other U.S. delivered energy products are being exploited by sophisticated “paper” speculators who never intend to receive physical delivery of the oil.

 

Earlier this week, Cantwell introduced the Prevent Unfair Manipulation of Prices Act of 2008 (S.3185) with Senators Whitehouse, Sanders, Kerry, Nelson, Wyden, and Clinton to close multiple loopholes that allow energy futures traders to evade federal oversight and hide their activities from other market traders. Senator Cantwell believes, and is supported by many industry experts, that enacting the PUMP Act into law will quickly bring down the world oil price to the marginal cost of production, which the oil industry and oil market experts believe is around $60 a barrel. Congressman Stupak introduced companion legislation in the House of Representatives last week. Representatives Van Hollen and DeLauro have introduced similar legislation, the Energy Markets Anti-Manipulation and Integrity Restoration Act of 2008 (H.R. 6341).

 

“With the Fourth of July rapidly approaching, working families and businesses are overwhelmed by punishing gas, diesel and home heating oil prices and are struggling to make ends meet,” said Cantwell. “Americans know that the current price of oil cannot be explained by supply and demand fundamentals and are demanding that we get to the bottom of these today’s out-of-control prices at the pump. We urgently need to close the loopholes that may be allowing a few rogue traders to hijack the oil futures market and force Americans to pay nearly twice as much at the pump as they should.”

 

“Rhode Islanders are facing the highest gas prices they’ve seen since the fuel crisis days of 1981 – prices that can no longer be explained by the simple economics of supply and demand. With the long summer months upon us, things could get much, much worse,” said Whitehouse, a member of the Senate Judiciary Committee and former Rhode Island U.S. Attorney and Attorney General. “Market speculators and energy traders have been skating around the law, playing games with energy markets and driving up prices. This bill will close loopholes, prevent excessive speculation, and help bring prices down.”

 

Sanders said, “Hedge funds and major Wall Street financial institutions are making tens of billions of dollars each and every year by speculating on oil futures, while working people are paying $4 for a gallon of gas and seniors wonder how they’ll heat their homes next winter. In my view, we need to deal aggressively with financial institutions and hedge funds that are speculating in oil futures and artificially driving up oil prices by as much as 50 percent.”

“Clearly, unregulated speculators have bid up oil prices to unbelievable and unacceptable highs,” Nelson said. “Congress needs to step in. We need to shine a light on all the participants and put an end to excessive speculation and any unlawful market manipulation.”

 

“Today, Americans are seeing the impacts of unregulated energy trading at their gas pumps – and it’s not a pretty sight,” said Senator Ron Wyden (D-OR), another co-sponsor of the PUMP Act. “Consumers shouldn’t be the victims of people who are gambling on energy markets just to make a fast buck.”

 

“All sectors of our economy have been hit hard by rising energy costs and those costs are passed along to American consumers in the form of higher prices for gasoline, food, transportation and manufactured goods,” said Congressman Stupak, chairman of the House Energy and Commerce Subcommittee on Oversight and Investigations. “Addressing high energy costs is a critical issue that must be priority No. 1 for Congress. Experts testified before my subcommittee on Monday that oil prices could drop by as much as 50 percent within 30 days if the PUMP Act were enacted. Now is the time for Congress to take up this comprehensive legislation and close off the loopholes that are allowing speculators to manipulate the markets.”

 

“With high fuel prices squeezing our constituents and burdening our economy, we in Congress have a responsibility to act,” said Representative Van Hollen. “While Members of Congress may not agree on every aspect of our energy policy, there is one principle on which we should all be united: our energy markets should serve the legitimate needs of energy consumers and producers, not enrich a narrow group of ‘hot money’ speculators at the public’s expense.”

 

“Everyday at the gas pump Americans are paying the price for what may be the improper manipulation of today’s energy and agricultural futures markets. We can no longer allow unethical speculators free reign to play these games while our entire economy hangs in the balance. It is time to empower the CFTC to do its regulatory job,” said Congresswoman DeLauro, chairwoman of the Agriculture Appropriations Subcommittee, which will hold a CFTC oversight hearing following the 4th of July district work period.

 

The Prevent Unfair Manipulation of Prices Act of 2008 (“2008 PUMP Act”) comprehensively addresses these statutory and administrative loopholes that are allowing energy futures traders to evade federal oversight and artificially elevate oil prices and the prices Americans face at the pump. Specifically, the bill:

 

· Closes All Oil Futures Market Loopholes: Completely closes the full ranges of loopholes being used by oil market speculators and dark market exchanges, including the so-called “Enron loophole,” including for bilateral “off-exchange” trades; the foreign board of trade (FTOB) loophole; energy swaps dealers loophole; and the bona fide hedging exemption loophole.

 

· Imposes Aggregate Speculation Limits: Requires the CFTC to set aggregate position limits on energy futures contracts for a trader across all contract markets. In doing so, the CFTC will be able to better prevent traders from amassing excessively large positions in a commodity across exchanges in an attempt to play one exchange off another.

 

· Requires Information on Index Funds: Requires public monthly reporting of index fund data for anyone trading U.S.-delivered energy futures contracts or trade on U.S. computer terminals on the CFTC’s website.

 

· Strengthens Federal Energy Regulatory Commission (FERC) Authority: Protect and strengthen the authority given to FERC in the 2005 Energy Policy Act to prosecute manipulation in natural gas and electricity markets.

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Guest Alt Fuel of NY

It seems that market design for oil futures (which is one of the most crucial commodities) allows easy manipulation which is not so easy to catch.

 

I am talking about "wash sales". Someone who has open long position (or oil producer) can establish Companies A and B on NYMEX. Company A wants to sell oil for $141 when the price is $140. Nobody is buying except company B which agrees to buy for $141. Then Company B wants to sell it for $142. Company A buys it. Both companies effectively closed their positions. No oil changed hands. Price is now $142 instead of $140.

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Guest LAW_*

Goldman manages the index, but the actual money put up comes from institutions, hedge funds and other unlucky saps that trusted Goldman to manage the commodity index as a hedge against inflation. I would investigate the stockholders of ICE first.

 

Intercontinental Exchange (ICE) was the brainchild of Morgan Stanley, Goldman Sachs, British Petroleum, Deutsche Bank, Dean Witter, Royal Dutch Shell, SG Investment Bank and Totalfina.

 

Sir Robert Paul Reid, chairman of the ICE Futures Europe Intercontinental Exchange.

 

Sands Capital Management, LLC owns 6,942,438 shares of ICE

Delaware Management Holdings owns 6,360,566 shares of ICE

Jeffrey C. Sprecher owns 2,238,010 shares of ICE

Frederick W. Schoenhut owns 83,794 shares of ICE

Richard V. Spencer owns 64,179 of ICE

Edwin D. Marcial owns 62,129 share of ICE

Jean-Marc Forneri owns 33,156 shares of ICE

Vincent Tese owns 26,157 shares of ICE

Charles R. Crisp owns 24,779 shares of ICE

Sir Robert Reid owns 14,831 shares of ICE

Judith A. Sprieser owns 4,685 shares of ICE

 

Charles R. Crisp is the retired President and Chief Executive Officer of Coral Energy, a Shell Oil affiliate responsible for wholesale gas.

 

Jean-Marc Forneri is founder and senior partner of Bucephale Finance, a boutique M&A firm specializing in large transactions for French corporations, foreign investors and private equity firms.

 

Fred W. Hatfield is the Senior Public Policy Advisor at Patton Boggs, LLP. Patton Boggs’ oil and gas practice offers the full spectrum of representation to major oil companies (private, publicly-traded, and government-owned) and independent oil and gas producers such as Amoco Corporation (now BP), Atlantic Richfield Company (ARCO), Shell, Qatar Petroleum, Oman Oil Company and Texaco, Inc. (now Chevron), and The Williams Companies, Inc.

 

Terrence F. Martell is the director of NYBOT and a member of NYBOT's Executive Committee and Audit Committee. Mr. Martell is currently a board member of the Manhattan Chamber of Commerce and a member of the Reuters/Jefferies CRB Index Oversight Committee.

 

Sir Robert Reid was the Deputy Governor of the Halifax Bank of Scotland from 1997 until 2004 and has served since 1999 as the Chairman of ICE Futures, our subsidiary. He spent much of his career at Shell International Petroleum Company Limited, and served as Chairman and Chief Executive of Shell U.K. Limited from 1985 until 1990.

 

Frederic V. Salerno served in the Office of the Chairman of Bell Atlantic from 1997 until 2001.

He also served on the board of directors of Verizon Communications, Inc. He has served on the boards of directors of The Bear Stearns Companies, Inc. since 1993, Viacom, nc. since 1996, Consolidated Edison, Inc. since 2002, Akamai Technologies, Inc. since 2002 and Popular, Inc. since 2003.

 

Richard L. Sandor, Ph. currently serves as the Chairman and Chief Executive Officer of the Chicago Climate Exchange, Inc., a position he has held since 2002, and serves as Chairman of Climate Exchange PLC, a position he has held since 2003.

 

Jeffrey C. Sprecher President, over a fourteen-year period with Western Power Group, Inc., a developer, owner and operator of large central-station power plants.

 

Vincent Tese serves as Chairman of Wireless Cable International, Inc., a position he has held since 1995.

 

Knight Capital Group provides comprehensive trade execution solutions in cash equities to the buy side and to the sell side. They are a leading Nasdaq market maker and have a significant presence in the NYSE-listed and third markets. Knight also provides Asset Management services for institutions and high net worth individuals.

 

Blackbaud, Inc. is the leading global provider of software and services designed specifically for nonprofit organizations, enabling them to improve operational efficiency, build strong relationships, and raise more money to support their missions.

 

MarketAxess Holdings as formed in April of 2000 in response to investors' need for a single trading platform with easy access to multi-dealer competitive pricing in a wide range of credit products. MarketAxess offers fully-disclosed electronic trading in U.S. high-grade corporates, Eurobonds, emerging markets, high yield/crossover, credit default swaps (CDS) and U.S. agency securities.

 

NYSE Group, Inc. operates the world ' s largest and most liquid exchange group and offers the most diverse array of financial products and services. NYSE Euronext, which brings together six cash equities exchanges in five countries and six derivatives exchanges, is a world leader for listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data.

 

CBOT Holdings, Inc. principal activities is to derive exchange based on contract volume with global listed futures and options on futures contracts. The Group operates in two reportable segments: Exchange Trading and Real Estate Operations.

 

Morningstar is a leading provider of independent investment research in the United States and in major international markets.

 

SEI Investments Company EI has been a leading provider of wealth management business solutions for the financial services industry.

 

NYFIX, Inc. principal activity is to design, produce and sell technology based products and services to professional financial services organizations.

 

TD Ameritrade Holding TD is the owner of TD AMERITRADE Inc., the largest online brokerage in the world in number of online equity trades placed per day.

 

I would also investigate this as well.

 

In January 2006, the Bush Administration permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.” It is ironic to think they wanted to convince Americans to take money from Social Security and invest it into the market.

 

Henry Merritt "Hank" Paulson Jr. is the United States Treasury Secretary and member of the International Monetary Fund Board of Governors. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs, one of the world's largest and most successful investment banks.

 

Frontier Oil (FTO:FTO), Cabot Oil & Gas (COG:Cabot Oil & Gas Corporation and Pride International (PDE:pride intl inc del com) and Gazprom overseas, British-Borneo Oil and Gas

ConocoPhillips Company.

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Guest human_*

Well Law, ye forgot about Pension Funds; They are invested in crude oil futures as well, and over half of all the money going into crude oil futures ARE from pension funds.

 

It would be rather tricky for your group "The democrats" to go after pension funds.

 

People Don't take kindly when your side goes after EVERYONE'S pensions.

-----------------------------------------------------------------------------------------------------------------------

Goldman manages the index, but the actual money put up comes from institutions, hedge funds and other unlucky saps that trusted Goldman to manage the commodity index as a hedge against inflation. I would investigate the stockholders of ICE first.

 

Intercontinental Exchange (ICE) was the brainchild of Morgan Stanley, Goldman Sachs, British Petroleum, Deutsche Bank, Dean Witter, Royal Dutch Shell, SG Investment Bank and Totalfina.

 

Sir Robert Paul Reid, chairman of the ICE Futures Europe Intercontinental Exchange.

 

Sands Capital Management, LLC owns 6,942,438 shares of ICE

Delaware Management Holdings owns 6,360,566 shares of ICE

Jeffrey C. Sprecher owns 2,238,010 shares of ICE

Frederick W. Schoenhut owns 83,794 shares of ICE

Richard V. Spencer owns 64,179 of ICE

Edwin D. Marcial owns 62,129 share of ICE

Jean-Marc Forneri owns 33,156 shares of ICE

Vincent Tese owns 26,157 shares of ICE

Charles R. Crisp owns 24,779 shares of ICE

Sir Robert Reid owns 14,831 shares of ICE

Judith A. Sprieser owns 4,685 shares of ICE

 

Charles R. Crisp is the retired President and Chief Executive Officer of Coral Energy, a Shell Oil affiliate responsible for wholesale gas.

 

Jean-Marc Forneri is founder and senior partner of Bucephale Finance, a boutique M&A firm specializing in large transactions for French corporations, foreign investors and private equity firms.

 

Fred W. Hatfield is the Senior Public Policy Advisor at Patton Boggs, LLP. Patton Boggs’ oil and gas practice offers the full spectrum of representation to major oil companies (private, publicly-traded, and government-owned) and independent oil and gas producers such as Amoco Corporation (now BP), Atlantic Richfield Company (ARCO), Shell, Qatar Petroleum, Oman Oil Company and Texaco, Inc. (now Chevron), and The Williams Companies, Inc.

 

Terrence F. Martell is the director of NYBOT and a member of NYBOT's Executive Committee and Audit Committee. Mr. Martell is currently a board member of the Manhattan Chamber of Commerce and a member of the Reuters/Jefferies CRB Index Oversight Committee.

 

Sir Robert Reid was the Deputy Governor of the Halifax Bank of Scotland from 1997 until 2004 and has served since 1999 as the Chairman of ICE Futures, our subsidiary. He spent much of his career at Shell International Petroleum Company Limited, and served as Chairman and Chief Executive of Shell U.K. Limited from 1985 until 1990.

 

Frederic V. Salerno served in the Office of the Chairman of Bell Atlantic from 1997 until 2001.

He also served on the board of directors of Verizon Communications, Inc. He has served on the boards of directors of The Bear Stearns Companies, Inc. since 1993, Viacom, nc. since 1996, Consolidated Edison, Inc. since 2002, Akamai Technologies, Inc. since 2002 and Popular, Inc. since 2003.

 

Richard L. Sandor, Ph. currently serves as the Chairman and Chief Executive Officer of the Chicago Climate Exchange, Inc., a position he has held since 2002, and serves as Chairman of Climate Exchange PLC, a position he has held since 2003.

 

Jeffrey C. Sprecher President, over a fourteen-year period with Western Power Group, Inc., a developer, owner and operator of large central-station power plants.

 

Vincent Tese serves as Chairman of Wireless Cable International, Inc., a position he has held since 1995.

 

Knight Capital Group provides comprehensive trade execution solutions in cash equities to the buy side and to the sell side. They are a leading Nasdaq market maker and have a significant presence in the NYSE-listed and third markets. Knight also provides Asset Management services for institutions and high net worth individuals.

 

Blackbaud, Inc. is the leading global provider of software and services designed specifically for nonprofit organizations, enabling them to improve operational efficiency, build strong relationships, and raise more money to support their missions.

 

MarketAxess Holdings as formed in April of 2000 in response to investors' need for a single trading platform with easy access to multi-dealer competitive pricing in a wide range of credit products. MarketAxess offers fully-disclosed electronic trading in U.S. high-grade corporates, Eurobonds, emerging markets, high yield/crossover, credit default swaps (CDS) and U.S. agency securities.

 

NYSE Group, Inc. operates the world ' s largest and most liquid exchange group and offers the most diverse array of financial products and services. NYSE Euronext, which brings together six cash equities exchanges in five countries and six derivatives exchanges, is a world leader for listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data.

 

CBOT Holdings, Inc. principal activities is to derive exchange based on contract volume with global listed futures and options on futures contracts. The Group operates in two reportable segments: Exchange Trading and Real Estate Operations.

 

Morningstar is a leading provider of independent investment research in the United States and in major international markets.

 

SEI Investments Company EI has been a leading provider of wealth management business solutions for the financial services industry.

 

NYFIX, Inc. principal activity is to design, produce and sell technology based products and services to professional financial services organizations.

 

TD Ameritrade Holding TD is the owner of TD AMERITRADE Inc., the largest online brokerage in the world in number of online equity trades placed per day.

 

I would also investigate this as well.

 

In January 2006, the Bush Administration permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.” It is ironic to think they wanted to convince Americans to take money from Social Security and invest it into the market.

 

Henry Merritt "Hank" Paulson Jr. is the United States Treasury Secretary and member of the International Monetary Fund Board of Governors. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs, one of the world's largest and most successful investment banks.

 

Frontier Oil (FTO:FTO), Cabot Oil & Gas (COG:Cabot Oil & Gas Corporation and Pride International (PDE:pride intl inc del com) and Gazprom overseas, British-Borneo Oil and Gas

ConocoPhillips Company.

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Guest Justin Kitsch

Oil Futures are at $143 a barrel. I heard they are going to hit $150 by the 4th. I do not think this is a Republican or Democratic issue. This speculator problem is something both parties want to resolve before it gets out of control.

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Yeah! But the problem is that there are no quick and easy solutions to any of this. Non-opec countries are producing as fast as possible, and other countries are playing politics with oil.

 

Add to that, that we are currently playing resource economic wars with each other "Around the world".

 

China investing in Latin America, South Africa, and India investing in it as well.

 

While Russia see's this a political opportunity to use oil as a leverage when it comes to affecting other countries politics.

 

Sure! We can tweak a few regulatory laws out there.

 

The underlining factors still remain though; We have to kick our reliance of foreign oil, and develop wind, solar, oil, nuclear with in our own territory.

 

Why no bio? Phosphorous. I use to be for biofuels, but then I read up more on it. To be honest, I'm hesitant on bio-fuels now.

 

But if law wants to PLAY politics with this, then by all means. Please explain to all of us what your side has planned for the pension funds since they account for over half of the money in oil futures????

 

 

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Oil Futures are at $143 a barrel. I heard they are going to hit $150 by the 4th. I do not think this is a Republican or Democratic issue. This speculator problem is something both parties want to resolve before it gets out of control.

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Guest Steve G.

I agree with everything you say, but until index speculation contracts are completely transparent and the margin calls are at least 35% our economic growth will slow down to a crawl. Commodities should not be considered like stocks.

 

Wind power, solar power, and every new type of energy source is defined as a commodity. These futures will be gobbled up as well.

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Guest LAW_*

The problem is that you Human and some Republicans only think short term.

 

Congress should modify Employee Retirement Income Security Act of 1974 (ERISA) regulations to prohibit commodity index replication strategies as unsuitable pension investments because of the damage that they do to the commodities futures markets and to Americans as a whole.

 

Commodity 'inflation' is actually a deflationary event. It will burst and when it does the full force of the recessionary forces will be felt and it will be of epic proportions.

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Guest Human_*

Steve, and to a few others out there, thank you for allowing me as well as others reading your posts to better understand the speculative side of crude oil futures and the loopholes that need serious attention.

 

-----------------------------------------------------------------------------------------------------------------------

I agree with everything you say, but until index speculation contracts are completely transparent and the margin calls are at least 35% our economic growth will slow down to a crawl. Commodities should not be considered like stocks.

 

Wind power, solar power, and every new type of energy source is defined as a commodity. These futures will be gobbled up as well.

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Guest Buzzy Bob

I am trying to understand what you all are saying. My question is what can we do about it. Its costing me over $800 per week to keep my rig going. I do not know how much longer I can last before I am going to have to sell my truck.

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