From the August 01, 2009 issue of Futures Magazine • Subscribe!

Dear Mr. Cramer...

I know I’m being impolite when I say, shut up…please, just shut up. But your rant about oil speculators on CNBC was ridiculous. When I heard you say “a travesty of a mockery of a sham,” I thought you were describing yourself. Ah, no, that was your take on the oil futures markets. This from a man who basically was the shill for bank crooks. Frankly, I thought Jon Stewart did a fine job of putting you in your place a couple months ago; too bad it didn’t last.

Someone sent me the link to the interview of CME Group CEO Craig Donohue by CNBC. It started with Cramer’s rant. Perhaps, as some have said, Craig was too polite in his denunciation of Cramer (not everyone is Jon Stewart). He certainly was a lot nicer than I would have been. But doesn’t this subject ever go away? Is it an every July conversation? Seems like it, because last year the same discussion was happening: Oil speculators being accused of gaming the market because of the spikes in volatility. And yet, there are no bogeymen being searched for when the stock market roils and spikes (as CNBC floor commentator Rick Santelli pointed out during the interview). I don’t see Cramer ranting about those strange occurrences, other than when he pumps up stocks that go bust a week later. But when it comes to oil markets, it has to be speculators who are causing the volatility. It certainly couldn’t be something less shadowy, more transparent; something like supply and demand.

Certainly there are regulations that can be adopted to better patrol the markets, but as the futures industry’s own regulator, the Commodity Futures Trading Commission (CFTC), has studied and found, misplaced controls on the products is not one of them. Pushing the regulators to take over margins (worst idea ever), triple margins (the exchanges actually do raise them in times of volatility) or put price controls on the markets are all economically proven bad ideas.

Right now winding through Congress is the proposed new financial regulation bill. The force majeure behind this bill was the near destruction of the U.S. economy brought to you by, no, not oil speculators, but U.S. banks and other Wall Street institutions that wouldn’t contain their greed. Hopefully the bill will do something to control these careless actions. Some rules now being proposed at the CFTC level, including higher capitalization of futures commission merchants’ (to $1 million minimum from $250,000), is causing some concern in the industry (see “Trendlines”). Another rule would raise the amount of margin minimum FCMs would need to hold (to 10% for both client and non-clients). These are both changes that may not make the markets safer. Even the National Futures Association noted in its comment letter that “During the past year’s significant market volatility, there has been no evidence that the current risk based capital requirement has failed or has placed FCMs in precarious financial solutions.”

The good news is most likely nothing significant will happen due to more important legislation as well as Congress’ August recess. The bad news is all this introspection probably is a waste of time. Recent news out of London was that a “rogue oil broker” triggered a price spike of a couple dollars due to unauthorized trading. The broker was with PVM Oil Associates, according to the Financial Times. This event followed on the footsteps of another rogue trader, this one from Morgan Stanley in London, who put on some oil trades apparently while intoxicated, and they went bad. The FT goes on to state that PVM’s head is an outspoken critic of oil speculators. Seems to me, neither oil speculators nor the futures markets are the problem. It really is those rogue traders, and those who (mis)manage them.

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