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The CFTC is looking at changing
commodity rules to force big funds to disgorge multi thousand contracts
positions.
The CFTC stated the commodity
markets are not geared to have big funds sitting on long term positions of
thousands of commodity contracts for long periods for foods and so on.
We could be looking at a forced
liquidation – similar to the silver liquidation that happened in the
big metal run up and silver corner by the Hunt brothers. That episode
resulted in huge losses for the Hunts – who were forced out at huge
losses after they tried to corner the silver market.
The entire world is up in arms
about the energy and food shortages. It does not matter that the shortages
are the real culprits. The fact is, pretty much all the nations are getting
ready to force speculators out of these markets. The speculators are buying
thousands of contracts in futures markets, even years ahead in grains, and
sitting on them.
The fact is that, in a world
food crisis, this is going to force poor people to pay – tribute
– to big investors to eat. The world governments are not going to allow
that to happen if they can stop it.
Already, India and others, and the US CFTC are looking at ways to force speculators to disgorge
their tens of thousands of contracts in critical commodities.
I would bet that the fund
universe is going to lose this battle. Many nations are getting behind this
effort… here is an article talking about the disgorge effort:
“by Peter Shinn
The government could step in if
commodity prices keep shooting higher. And some see some sort of government
intervention in the marketplace as a virtual certainty. But for the leader of
one agricultural group, that kind of discussion brings to mind the ag trade
policy missteps of the late 1970s.
Imagine $200 a barrel oil, $9 a
bushel corn and $20 a bushel soybeans. Then consider the prospect of less
available wheat than now thought as the cattle industry begins feeding much
more of that commodity. That's the near future as envisioned by two separate
commodity analysts and brokers, especially in light of Tuesday’s USDA
Crop Production report and World Agricultural Supply and Demand Estimates,
which lowered this year’s U.S. corn production by 360 million bushels
to 11.7 billion and projected increased global demand for soybean meal and
vegetable oil.
And if that future does come to
pass, both of the analysts foresee U.S. government intervention as likely. Doug
McClellan is President of Plains Commodities in Omaha. He told Brownfield
he’s heard talk of a complete elimination of government support for
corn-based ethanol and a potential effort to drive excessive speculation from
ag commodity futures markets.
"One way to do it is let's
just go in and cut the ethanol program completely," McClellan said. "Let's
go in and take the hedge funds and the index funds and say, 'No, you can't
have 5,000 or 10,000 contracts per account or whatever it is. We're going to
cut that speculative power back. You can only trade 2,500 contracts and force
a liquidation to get that speculation back in line,'" he added. "Those
are some of the scenarios going around."…”
But, in light of this very
painful commodity boom, the USD happens to be rallying at the moment. Of
course, one reason is that the US Fed (Bernanke) is talking about fighting
inflation. In fact, much of the world is talking that. That also is happening
at the right time to combat this commodity investment ‘boom’ that
is probably going to be curtailed by world regulators.
The USD rallied heavily this
week on the perception that the Fed is really going to try and do something
about inflation in the US. All the markets needed was an excuse to rally the
USD because there is already so much pressure in the EU zone to stem the
Euro’s rise. Gold took quite a hit this week as a result. I would not
be surprised that the world commodity investment mania is behind the USD
rallying because a higher USD is a way to combat that.
We had alerted subscribers
Sunday that the USD might strengthen Tuesday, and gold correct. That
happened. Oil has been resisting correction somewhat, however.
The Prudent Squirrel newsletter
is our financial and gold commentary. Subscribers get 44 newsletters a year
on Sundays, and also mid week email alerts as needed. We alerted our
subscribers Sunday that gold could correct Tuesday. The USD has
strengthened significantly since. The alerts include quick notification of
important financial news developments by email. Subscribers tell us that the
alerts alone are worth subscribing for.
Chris
Laird
Prudent
Squirrel
Chris Laird has been an Oracle
systems engineer, database administrator, and math teacher. He has a BS in
mathematics from UCLA and is a certified Oracle database administrator. He
has been an avid follower of financial news since childhood. His father is
Jere Laird, former business editor of KNX news AM 1070, Los Angeles (ret). He
has grown up immersed in financial news. His Grandmother was Alice Widener,
publisher of USA magazine in the 60?s to 80?s, a newsletter that covered many
of the topics you find today at the preeminent gold sites. Chris is the
publisher of the Prudent
Squirrel
newsletter, an economic and
gold commentary.
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