Yesterday, the New York Times, quoting their usual "unnamed sources who spoke on the condition of anonymity," reported that federal prosecutors do not expect to file criminal charges against MF Global CEO Jon S. Corzine or any other top MFG officials because they could only find evidence of incompetence, not criminality. Apparently there is no penalty for stupidity in the loss of over $1 billion of customer funds. In this day of electronic transfer of money, no one seems to be able to trace the computer click that sends funds from one IP address to another. Corzine himself says he has no idea how a billion dollars walked out the door unnoticed and doesn't know where any of the money is.
After examining all the evidence for 10 months, Obama's federal prosecutors could find no evidence of criminal activity. But there are too many dots to connect for this story to die. The futures brokerage industry has long considered segregated customer funds sacrosanct. Under Corzine's direction, those customer funds were used to offset losses in MFG's massive investment in European debt. Corzine was considered an investment genius by Democrats. The video below, shows an embarrassed Jon Corzine standing on stage and sheepishly accepting praise heaped upon him by Vice President Joe ("They're gonna put y'all back in chains.") Biden in early 2009. Biden says that the first person that He and Obama called after the election for financial advice was Corzine. Could this be true or is it just Biden saying dumb things again? Corzine had already been run out of Goldman Sachs by the stockholders and out of the governor's mansion by the New Jersey voters. But Biden called him the smartest guy I know.
What's even more shocking is Corzine's status as one of Obama's elite bundlers. According to the official BarackObama.com website, Corzine raised over $500,000 for the Obama campaign in the first quarter of 2012 - while under investigation by Obama's justice department. Will the Obama administration actually indict one of its own top fundraisers? Will they really drop a case where over $1 billion of customer money has gone missing? If this isn't crazy enough, Forbes is reporting that Corzine is planning to start a hedge fund. Who's going to put their money in that?
Friday, August 17, 2012
Tuesday, July 10, 2012
No Doritos for You
Midwest farmers in the U.S. Corn Belt are getting wacked with a double whammy this summer: no rain and 100 degree temperatures. This is the perfect storm as corn enters the critical pollination phase of the growth cycle. There’s talk of comparisons to the 1988 drought which cost U.S. farmers 45 percent of their crop. Smaller crops mean higher prices and guess who pays – you do, of course.
In spite of planting over 96 million acres (the largest crop in over 75 years), corn prices are racing the thermometer toward record levels. And it’s not just corn; soybeans and wheat prices (think bread) are soaring like condors over heat thermals as well. That means even the peanut butter and jelly sandwich you’ve been eating because you lost your job during the recession is going to cost you more.
Corn prices have increased almost 50 percent since mid-June, only a few weeks ago (see the above chart). The Ag research analysts are rolling out their usual explanations attributing the problem to La Niña and El Niño weather patterns and the global warming alarmists are saying I told you so. But there are further complications exacerbating the problem: other global corn producers including Russia, China and Brazil are looking at potentially similar poor harvests. With more than seven billion hungry mouths around the world to feed, the grain markets may make even the oil markets look stable.
In spite of planting over 96 million acres (the largest crop in over 75 years), corn prices are racing the thermometer toward record levels. And it’s not just corn; soybeans and wheat prices (think bread) are soaring like condors over heat thermals as well. That means even the peanut butter and jelly sandwich you’ve been eating because you lost your job during the recession is going to cost you more.
Corn prices have increased almost 50 percent since mid-June, only a few weeks ago (see the above chart). The Ag research analysts are rolling out their usual explanations attributing the problem to La Niña and El Niño weather patterns and the global warming alarmists are saying I told you so. But there are further complications exacerbating the problem: other global corn producers including Russia, China and Brazil are looking at potentially similar poor harvests. With more than seven billion hungry mouths around the world to feed, the grain markets may make even the oil markets look stable.
Monday, April 30, 2012
Regulating oil speculators
Running for office? Worried about high gas prices? Need a scapegoat, someone to blame? Yes, it must be those greedy commodity traders in Chicago and New York who are running up the price of oil and making a fortune at the public’s expense. But, is that true?
Anyone looking for a headline to promote themselves is attacking the nefarious “oil speculators” these days. President Barack Obama, seeking support from American gasoline consumers - a massive constituency to be sure - recently announced his intention to impose more regulations on the futures industry. On his top-rated cable news show, The O’Reilly Factor, Bill O’Reilly has repeatedly blamed oil “speculators” for the rising price of gas at the pump and has also called for more regulation. At a Senate hearing, Washington Senator Maria Cantwell said excessive oil market speculation is behind skyrocketing prices burdening American families and businesses. But Obama and Cantwell are both up for re-election in November and O’Reilly lives off his TV ratings. With drivers increasingly irritated by each uptick in prices at the pump, the melding of these groups is a perfect storm of headlines, anger and calls for government controls. Do futures traders put up no money at all as O’Reilly has claimed? What are the facts?
Any trader who buys (takes a “long” position anticipating higher prices) or sells (takes a “short” position anticipating lower prices) must provide funds to meet margin requirements in his trading account before being able to place an electronic order. These margin requirements are mandated by the Commodity Futures Trading Commission (CFTC), set by the exchanges and enforced by the member brokerage firms. In the case of oil futures, that requirement is $6,885 of the value of the contract. For gasoline, the requirement is $9,900 per contract. Because of the volatility of oil prices and the greater risk to the trader (and, consequently, to his brokerage firm and to the exchange itself as the final guarantor of performance), the margin requirement for energy contracts is higher than for most other commodities. For example, the margin requirement for the widely held LIBOR interest rate futures contract is $574 per contract; for the Board of Trade’s popular corn contract, the margin requirement is $2,363.
Some traders argue that if margin requirements are increased, smaller traders will be driven from the market risking manipulation by well-financed large traders. Is that what Obama and O’Reilly want? It would also decrease liquidity, the lifeblood of the American futures industry. Increasing margin requirements is like increasing taxes: it makes it more expensive to do business and, therefore, impedes business. Most knowledgeable observers have been critical of O'Reilly and Obama's war on free markets. Lest we forget, for every "speculator" that paid a high price in the futures market, some other "speculator" who thought he was wrong sold it to him.
Anyone looking for a headline to promote themselves is attacking the nefarious “oil speculators” these days. President Barack Obama, seeking support from American gasoline consumers - a massive constituency to be sure - recently announced his intention to impose more regulations on the futures industry. On his top-rated cable news show, The O’Reilly Factor, Bill O’Reilly has repeatedly blamed oil “speculators” for the rising price of gas at the pump and has also called for more regulation. At a Senate hearing, Washington Senator Maria Cantwell said excessive oil market speculation is behind skyrocketing prices burdening American families and businesses. But Obama and Cantwell are both up for re-election in November and O’Reilly lives off his TV ratings. With drivers increasingly irritated by each uptick in prices at the pump, the melding of these groups is a perfect storm of headlines, anger and calls for government controls. Do futures traders put up no money at all as O’Reilly has claimed? What are the facts?
Any trader who buys (takes a “long” position anticipating higher prices) or sells (takes a “short” position anticipating lower prices) must provide funds to meet margin requirements in his trading account before being able to place an electronic order. These margin requirements are mandated by the Commodity Futures Trading Commission (CFTC), set by the exchanges and enforced by the member brokerage firms. In the case of oil futures, that requirement is $6,885 of the value of the contract. For gasoline, the requirement is $9,900 per contract. Because of the volatility of oil prices and the greater risk to the trader (and, consequently, to his brokerage firm and to the exchange itself as the final guarantor of performance), the margin requirement for energy contracts is higher than for most other commodities. For example, the margin requirement for the widely held LIBOR interest rate futures contract is $574 per contract; for the Board of Trade’s popular corn contract, the margin requirement is $2,363.
Some traders argue that if margin requirements are increased, smaller traders will be driven from the market risking manipulation by well-financed large traders. Is that what Obama and O’Reilly want? It would also decrease liquidity, the lifeblood of the American futures industry. Increasing margin requirements is like increasing taxes: it makes it more expensive to do business and, therefore, impedes business. Most knowledgeable observers have been critical of O'Reilly and Obama's war on free markets. Lest we forget, for every "speculator" that paid a high price in the futures market, some other "speculator" who thought he was wrong sold it to him.
Sunday, April 01, 2012
New hot commodity: Grains and the "free" markets in Chicago
The U.S. Department of Agriculture surprised the futures markets this morning with a report showing that stockpiles of corn fell 8 percent from a year ago – more than analysts were expecting. As a result, corn futures for May and July delivery rose by the $0.40 daily limit to near $6.50 per bushel. Projected acreage for soybeans and wheat planting was less than 2011 and so prices for those commodities are also much higher. With oil over $100 per barrel and gasoline at the pump flirting with $5.00 per gallon, what does this mean for commodity prices if the U.S. economy ever heats up?
In the robust economy of the 1990s, corn could barely get over $2.00 per bushel and now it’s more than three times the 1990s rate! What changed? Looking at the iTrade price chart of corn on the left, the position marked in red shows the last corn futures price under $2.00/bushel. That was in 2005. Today corn is limit bid at $6.44 and looking for an offer. But what happened in 2005?
In 2005, there was a significant transforming event: the Chicago Mercantile Exchange and the Chicago Board of Trade became “corporate.” For over 100 years, the Chicago exchanges were owned and controlled by its individual members. The markets are now mostly traded by corporations, the memberships are owned by corporations and, in fact, the exchanges themselves are now corporations. In an age where there are cries that oil prices are rigged by corporate speculators, can the same thing be happening to other commodities like corn, soybeans and wheat?
For years, the Chicago futures pits were hailed as the last bastion of open and free markets – a challenging environment of raw capitalism where fortunes were quickly made and lost based on the sheer resourcefulness and energy of individual, entrepreneurial traders. But times have changed. Just as corporations have taken over Las Vegas gambling, they have also taken over the Chicago commodity speculation markets. The CFTC (Commodity Futures Trading Commission) is supposed to be in charge but the CFTC still cannot find over $1.6 BILLION in customer funds that Jon Corzine was responsible for protecting at MF Global!
This is the first in a series of reports on the subject of the “free” markets of the Chicago commodity exchanges and how prices can quadruple even with no demand.
In the robust economy of the 1990s, corn could barely get over $2.00 per bushel and now it’s more than three times the 1990s rate! What changed? Looking at the iTrade price chart of corn on the left, the position marked in red shows the last corn futures price under $2.00/bushel. That was in 2005. Today corn is limit bid at $6.44 and looking for an offer. But what happened in 2005?
In 2005, there was a significant transforming event: the Chicago Mercantile Exchange and the Chicago Board of Trade became “corporate.” For over 100 years, the Chicago exchanges were owned and controlled by its individual members. The markets are now mostly traded by corporations, the memberships are owned by corporations and, in fact, the exchanges themselves are now corporations. In an age where there are cries that oil prices are rigged by corporate speculators, can the same thing be happening to other commodities like corn, soybeans and wheat?
For years, the Chicago futures pits were hailed as the last bastion of open and free markets – a challenging environment of raw capitalism where fortunes were quickly made and lost based on the sheer resourcefulness and energy of individual, entrepreneurial traders. But times have changed. Just as corporations have taken over Las Vegas gambling, they have also taken over the Chicago commodity speculation markets. The CFTC (Commodity Futures Trading Commission) is supposed to be in charge but the CFTC still cannot find over $1.6 BILLION in customer funds that Jon Corzine was responsible for protecting at MF Global!
This is the first in a series of reports on the subject of the “free” markets of the Chicago commodity exchanges and how prices can quadruple even with no demand.
Saturday, February 25, 2012
Gas Prices :-(
Gasoline has been a hot commodity for years and prices are spiraling out of control again. On Friday, February 24, gasoline futures for April delivery on the New York Mercantile Exchange settled at $3.32 per gallon. That price plus taxes, which vary based on where you live (I add about 70 cents per gallon for suburban Chicago), is a reasonable estimate for where pump prices should be. Currently, the national average is $3.63 with a wide range from Denver’s $3.08 per gallon to San Francisco’s $4.31. These are record high prices for February and portend a very expensive summer driving season. So what’s going on?
Tension in the Middle East has provided speculators with an opportunity to bid up the price but the world’s economies are not exactly over-heating. So what’s the problem? No one seems to know and, if the average driver buys 50 gallons a month and the price goes up a dollar per gallon, the $40 per month savings that both parties spent so much time and political capital on in Congress by passing the payroll tax cut legislation last week will have been for naught.
A few days ago, President Barack Obama said "We know there's no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight." Overnight? What about the last three years! The pump price for regular gasoline when Obama took office was $1.84 but has since increased by almost 100 percent. No more off-shore drilling, Alaska drilling or Canadian pipeline. No free oil or even a price discount from Iraq even though we spent over one trillion dollars and suffered over 36,000 killed and wounded American soldiers while liberating that country. Did they ever even say thanks? Americans struggle to pay for transportation at home while our Arab “allies” build indoor ski slopes in the desert because they can’t think of anything else to do with all the money we keep sending them.
We have learned that commodity prices can be high and stay high without strong demand. In the 1990s when the U.S. economy was strong and unemployment was low, oil traded at $10 a barrel and now it’s $110. Corn was around $2 and now it’s over $6. At these prices, we can’t afford to have the economy start growing and drive commodity prices even higher!
Tension in the Middle East has provided speculators with an opportunity to bid up the price but the world’s economies are not exactly over-heating. So what’s the problem? No one seems to know and, if the average driver buys 50 gallons a month and the price goes up a dollar per gallon, the $40 per month savings that both parties spent so much time and political capital on in Congress by passing the payroll tax cut legislation last week will have been for naught.
A few days ago, President Barack Obama said "We know there's no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight." Overnight? What about the last three years! The pump price for regular gasoline when Obama took office was $1.84 but has since increased by almost 100 percent. No more off-shore drilling, Alaska drilling or Canadian pipeline. No free oil or even a price discount from Iraq even though we spent over one trillion dollars and suffered over 36,000 killed and wounded American soldiers while liberating that country. Did they ever even say thanks? Americans struggle to pay for transportation at home while our Arab “allies” build indoor ski slopes in the desert because they can’t think of anything else to do with all the money we keep sending them.
We have learned that commodity prices can be high and stay high without strong demand. In the 1990s when the U.S. economy was strong and unemployment was low, oil traded at $10 a barrel and now it’s $110. Corn was around $2 and now it’s over $6. At these prices, we can’t afford to have the economy start growing and drive commodity prices even higher!
Monday, January 30, 2012
Commodity traders lose the will to fight
Tomorrow, January 31, 2012, is the deadline for submitting claims to the MF Global bankruptcy trustees. If you don’t ask, they won’t give your money back. Go here to file your claim.
And, where is it all the money anyway? Is it still a mystery or is it gone? Someone has $1.2 billion and no one has been charged with any crime! Trading volume – and, hence, brokerage firm and CME revenue - is down significantly as are customer funds deposited with trading firms. Not only was money stolen, but a key United States industry has been maimed.
Why isn’t Corzine in jail? Where’s Obama?
Not only was MF Global’s demise apparently rigged, the markets, themselves, are being rigged by the federal government. Federal Reserve Chairman Ben Bernanke (whose middle name, Shalom, means “peace” and “welfare” in Hebrew) has declared war on the free market system by promoting corporate welfare with his low rate crapshoot. He wants to force the federal funds rate to remain at, effectively, zero for the next THREE YEARS! Good luck CME in getting any action in your once dominant 90 day LIBOR contract.
There are less than a handful of occutards remaining outside the Chicago Board of Trade these days. There has been no impact on corporate greed from this once-promising movement as it has degenerated into a bunch of self-indulgent, disorganized, dirty, destructive mobs with no focus and no message. And where is the Tea Party on this? Nowhere. Only the gold hucksters are making money on commodities now.
And, where is it all the money anyway? Is it still a mystery or is it gone? Someone has $1.2 billion and no one has been charged with any crime! Trading volume – and, hence, brokerage firm and CME revenue - is down significantly as are customer funds deposited with trading firms. Not only was money stolen, but a key United States industry has been maimed.
Not only was MF Global’s demise apparently rigged, the markets, themselves, are being rigged by the federal government. Federal Reserve Chairman Ben Bernanke (whose middle name, Shalom, means “peace” and “welfare” in Hebrew) has declared war on the free market system by promoting corporate welfare with his low rate crapshoot. He wants to force the federal funds rate to remain at, effectively, zero for the next THREE YEARS! Good luck CME in getting any action in your once dominant 90 day LIBOR contract.
There are less than a handful of occutards remaining outside the Chicago Board of Trade these days. There has been no impact on corporate greed from this once-promising movement as it has degenerated into a bunch of self-indulgent, disorganized, dirty, destructive mobs with no focus and no message. And where is the Tea Party on this? Nowhere. Only the gold hucksters are making money on commodities now.
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