From the June 01, 2011 issue of Futures Magazine • Subscribe!

A limit in time

Editor's Note

imageI was in Washington D.C. the night President Obama announced the finding and killing of Osama bin Laden. I got the news alert just as I was going to bed and must admit, I was elated. As I was staying about two blocks from the White House, a couple hours later I was awakened by the collective partying in the streets.

No doubt, most people in this industry knew at least someone who died on 9/11 — the World Trade Center was home to exchanges, trading firms, brokers and technology companies. I know I did, and like most people, the horror of that day still haunts me. So although I didn’t join the party in front of the White House that night, I was there in spirit. Even if bin Laden had only become a symbol, as some say, to most Americans he was a potent symbol of terrorism that has infiltrated our everyday lives. So I thank President Obama and the brave Navy Seals and military forces who took this decisive action.

And boy, did markets rock the following week! Commodities — some at all time highs — plunged the next few days. Gold, silver, crude oil and copper all dropped — some double digit percentage moves — due in part to the U.S. dollar’s surge. During the same period, Glencore, the largest commodity trading firm in the world, went public. Oh, and yes, the same week the House Ag committee voted along party lines to push back the deadline for Dodd-Frank regulation enforcement to the end of 2012 — no doubt in hopes of killing the bill.

Although there are deadlines this summer for Dodd-Frank-mandated rules to be in place, Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler told the industry as far back as March that his agency wouldn’t make the deadline for many of the rules. Nonetheless, in the last few months, the CFTC diligently has cranked out rule proposals.

One proposed rule that seems to take more air time than the others and probably shouldn’t, is on position limits. In fact, during a speech at the FIA Boca show, Chairman Gensler noted at that time they had received more than 8,000 comment letters on the proposed position limit rule. During an after-speech press conference, I said I assumed most of the comments were against setting limits. "Have you read them?" he asked. No, I admitted weakly. "I think you’ll be very surprised."

So Mr. Gensler, I did go through many of the letters and frankly, many if not most (okay, I didn’t go through all the comments that now total 12,000 plus) were for position limits, but specifically on silver, and most of those were form letters. So I’m not sure what the Commission can glean from that, other than that silver has a pretty intense "lobby."

The spec limit debate, by Managing Editor Daniel P. Collins, provides a status report on spec limit rules. Speculators always get tossed under the bus when prices are high. When asked why the public blames specs for high-priced commodity ills, long-time ag trader Bill Plummer said, "The politicians are looking for a scapegoat; the scapegoat is speculators. A little bit of self-examination on the part of politicians would be helpful...The way to deal with price advances is to increase supply; demand will be rationed by advancing price. ...Regulation often times has had the unintended consequence of causing activities to occur that the regulation is designed to prevent." (See Plummer lets the markets decide, by Daniel P. Collins.)

Supply-demand will be especially key to grain markets this summer, particularly the corn market that could see major shortages if weather impacts the growth season even a little bit (see Southern fried corn, by Chip Flory). It will be interesting to see if speculators get blamed if corn prices hit new highs, especially because the grain markets do have position limits.

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