A Sad Day for Freedom and the Free Markets
The CFTC took a dangerous step toward damaging the credibility of our nation's energy markets and may have harmed the economy and the average American. The commission's view that speculators are guilty until proven innocent is just another step in the Dodd-Frank regulatory overreach that is freezing our economy and stagnating job growth. This witch hunt against this elusive ghost called "excessive speculation" culminated in a 3 to 2 party line vote that will help drive trading in oil into a less transparent marketplace and will eventually lead to a less liquid and more volatile market.
You think trading is volatile now, well folks you haven't seen anything yet. In fact forget about volatility. I predict that the implementation of these new regulations will create shortages the next time the market is challenged by the type of economic crisis that we saw in 2008.
The spike up in oil to the all time high in 2008 was the catalyst for this damaging regulation and it was based on the false assumption that "excessive speculation" was driving the price of oil to record highs. Of course we now all know that the prices of oil and all other commodities were a relief valve as the market sought safe haven from the greatest economic crisis of modern times. If money was restricted from entering the futures markets at that time, the global economic crisis would have had much more severe consequences. We would have seen hording of supply and the freezing of commodity movement as the big players would have refused to sell to each other because of the lack of real true price discovery. In other words, the global commodity markets would have frozen more than the banks.
Even Commissioner Michael Dunn, who cast the deciding vote on this dangerous ruling, said, "position limits are a ‘sideshow’ and there’s no proof that there is excessive speculation, or that prices will drop once limits are in place." He is right they won't. This is to appease politicians that have no real understanding of the futures markets and the important role that they play in the heath, vitality and viability of the US economy yet the regulators decided to put in play rules that will have far reaching and damaging unintended consequences.
At a time when the global economy has more risk than perhaps it has ever had you need more and more people to assume that risk or in the end it will be the taxpayers that will have to bail the economy out. It will come in the form of higher taxes and by higher and more volatile prices for all goods. This move to rein in speculation and treat cash settled and deliverable markets differently will add more volatility, not less.
In fact the near record high volatility that we have seen in oil over the last year has been caused by global governments not by oil speculators. Just think how the markets are getting driven around by the headlines coming out of our Fed or central banks around the globe. Some of the biggest one day moves in oil came after speeches by Jean Claude Trichet and was not driven by speculators. With bank failures, quantitative easing and the risks of sovereign default around every corner and the downgrading of America's credit rating, is it any wonder why oil prices have been so volatile?
Just yesterday oil rallied on a Guardian report that France and Germany were going to increase the European bank bailout fund five-fold, adding two trillion Euros. Later it was denied as a done deal but if you look back over the last couple of years in oil it is obvious that the markets are being driven by things other than the so called traditional fundamentals. I didn't even mention the downgrade of Spain's credit rating. Spain's credit rating was cut for the third time in 13 months by Moody’s, cutting it by two levels to A1 from Aa2, with the outlook remaining negative.