Commodity Speculation Limits Divide CFTC With Dodd-Frank Deadline Looming - This debate, reported Bloomberg, is probably inevitable given the rises seen in commodity markets and the outcome will certainly have implications. Here is the opening:
Curbing speculation in raw materials including oil, gold and wheat has touched off a battle at the top U.S. commodities regulator with a legal deadline to rein in traders just four days away.
The Commodity Futures Trading Commission is divided over how to meet the requirements of the Dodd-Frank financial overhaul that became law last year. A lack of data on the $583 trillion global over-the-counter derivatives market has complicated the agency's efforts to limit speculation this month, as directed by the law.
Commissioner Scott O'Malia said today fellow commissioners are attempting a "Trojan horse" move that would impose limits without proper debate. Chairman Gary Gensler last month directed the agency's staff to gather data from firms that exceed certain thresholds, while Commissioner Bart Chilton advocated "position points" beyond which the agency might push traders to reduce or freeze their holdings.
"Much of the pressure to immediately implement position limits/'position points' comes from those who advocate the need for price controls," O'Malia, a Republican, said in a statement. "It is not the role of the commission to control prices."
The CFTC today voted 4-1 to propose rules that would limit the number of contracts a single firm can hold. The public has 60 days to critique the caps. O'Malia said he's "very skeptical" about the proposal, though he voted to put it out for comment. No date is for a final vote on the rules.
My view - Physical commodities and futures were never meant to be investments. Commodity speculators can play a useful role by providing liquidity but if there are too many speculators, including hedge funds and university endowment funds piling into commodity trackers, they become the problem by making normal hedging practices more risky and driving prices higher.
We saw this in 2H 2007 and 1H 2008, and we are seeing it again today. Too many people, understandably concerned about the future purchasing power of their paper money, are flocking to commodity markets in greater numbers. Taken to its extreme and in the law of unintended consequences category, this can be seen as an attempt to corner a market, whether intentionally or unwittingly.
This item continues in the Subscriber's Area.
Email of the day (1) - On shorting US Treasuries:
"I would greatly appreciate if you could comment on the relevant advantages or disadvantages of shorting 7-10 yr. bonds via ProShares PST, and shorting 20+ yrs via ProShares TBT, which has already been mentioned in previous Comments?
"Gvmt Bonds are an entirely new area for me as I have never gone long, or shorted them, however I am in full agreement with you that shorting long-dated gvmt bonds could be in the early stages of a major new investment theme which could span many years. However, do 10 year bonds qualify as long term, and do you feel they are as compelling as 20+ years (from a shorting perspective)?
"I should mention that I have been a subscriber for about 8 years and look forward to your Comment of the Day, especially the Audio. There is no doubt that I have benefited from you acumen, and ability to see through all the market "noise" and focus on the real long-term issues and trends. I also used to be an original subscriber back in the old 'hard-copy days". At the time, although I had no money to invest, but your reports provided a sound basis for me to begin understanding the markets, the principles of investing and learning how to stay focussed on key themes despite conflicting views of the so-called Market "Experts" whose fickle opinions seem to change daily!
"Eoin has been a valuable addition to your team. Keep up the good work guys!"
My comment - Thank you for your thoughtful words and for your interest in Fullermoney over so many years.
This item continues in the Subscriber's Area.
My personal portfolio: Long-term position switch - Details and charts are in the Subscriber's Area, along with a discussion of index trackers versus investment trusts (closed-end funds), and unit trusts (mutual funds).
Email of the day (2) - More on Facebook:
"Re Tuesday's item re Facebook, I'm 70 +, haven't joined and have no intention of doing so. But a year ago noted that my old school ( London day Public) had a facebook site and got into it and was startled by what it contained. Strands about "The most popular master", "The most rubbish master", critiques of master's personal appearances and habits, a degree of cyber bullying of contemporaries, homophobic comments - I wonder how masters can maintain any kind of discipline. I don't know if and how the school authorities can close it down. By the way, this is not "Dotheboys Hall" we are talking about, but a school that still appears in the top decile for academic results."
My comment - Thank you for this very interesting observation, which is perhaps not all that surprising.
Crowds - whether on the streets, in markets, or parliaments and other political arenas, or on internet sites - can easily become mobs, displaying mankind's baser instincts. When crowds are not under the most civilising or somnambulant influences, they can become predatory, regressive, goading and aggressively competitive. This is particularly true when people feel that they are participating in mob behaviour under the cloak of anonymity.
Additional commentary by Eoin Treacy
Coal at 28-Month High to Beat Oil, Gas on Floods: Energy Markets - This article by Dinakar Sethuraman and Ben Sharples for Bloomberg may be of interest to subscribers. Here is a section:
"You have strong underlying fundamentals for coal," said Emmanuel Fages, a Paris-based analyst at Societe Generale SA. "Bottlenecks remain on the supply side, so Asia is sucking up resources even more from traditional suppliers of the West, like Colombia or South Africa. You are bound see price increases over the medium term."
China's coal imports may rise to 210 million tons in 2011 from an estimated 166 million last year, according to Lau. The country, which became a net importer of the fuel for the first time in 2009, boosted overseas purchases by 35 percent through November 2010, according to government data.
While oil imports to China will continue to increase this year, they may not match last year's 17 percent pace, as growth in refining capacity slows, Lawrence Eagles, a New York-based analyst with JPMorgan Chase & Co., said in a Jan. 10 note.
India may double imports of thermal coal to 104 million tons in the year ending March 2012, according to Coal Minister Sriprakash Jaiswal. That compares with 3 percent growth in oil consumption, according to the Paris-based IEA.
"Long-term fundamentals for coal are more robust than for oil or gas, because the price increases are really driven by speculative expectations at present for oil and gas," Fages said. If growth slows in China, it would take only about a month for oil and gas "to come down to much lower levels," he said.
My view - Coal remains a key supply inelasticity situation as continued strong demand growth puts pressure on supply bottlenecks. As with all such instances, when supply is constrained by a lack of adequate infrastructure, weather, labour and accidents these factors put additional upward pressure on prices.
Coal futures have posted a progression of higher reaction lows since early 2009 and the pace of its advance has picked up since early 2010. A break of the medium-term uptrend, with a sustained move below $70, would be required to begin to question medium-term upside potential.
This section continues in the Subscriber's Area.
Australia Inflation Risk Seen in Tomato Price Jump - This article by Michael Heath and Daniel Petrie for Bloomberg may be of interest to subscribers. Here is a section:
Stevens has a mandate to keep inflation in a range of 2 percent to 3 percent. In July to September, the consumer price index rose at a quarterly pace of 0.7 percent. It may rise 1.2 percent in the first quarter of this year, according to the median of six estimates in a Bloomberg News survey, compared with a pre-flood estimate of 0.9 percent.
The projected pace would be the fastest since the third quarter of 2008, when the RBA's cash rate target was at 7.25 percent, compared with its current level of 4.75 percent.
GDP growth in the first three months this year will be half as high as the pre-flood forecast, at 0.4 percent, a survey of seven economists showed.
The reconstruction efforts may suffer from skill shortages already straining mining operations, threatening to push up wages for some workers.
While Australian employers added 2,300 workers in December, fewer than forecast by all 17 economists surveyed by Bloomberg, the unemployment rate dipped to 5 percent.
Bank of America Merrill Lynch economists said the RBA would resume raising rates "from the middle of the year, assuming that weather normalizes in about April."
My view - The Australian floods, which appear to have peaked today, will require a considerable reconstruction. With labour markets already tight and crop losses exacerbating the upward trend in food prices, inflationary pressures are likely to remain a concern for the Australian economy over the medium term. However, in the short-term, interest rates are unlikely to head higher because access to credit will be required to help foster reconstruction.
This section continues in the Subscriber's Area.
Tunisia Stocks Drop to Year-Low; Poulina Falls - This article my by Ahmed Namatalla may be of interest to subscribers. Here is a brief section:
Tunisian stocks tumbled to the lowest level in almost a year as violence escalated, forcing the government to impose a night-time curfew. The cost of protection against default by the North African country rose to the highest since 2009.
My view - Small illiquid markets such as Tunisia and others globally are capable of incredible moves both up and down. This is at least in part because they are relatively thin and illiquid; allowing a relatively small number of reasonably sized funds to dominate the market. Small markets such as Tunisia rise on a swell of liquidity as investors compete for access. However they are equally capable of falling abruptly as a few large investors attempt to take profits. Bids disappear, prices plummet and when this takes place in a politically charged environment, confidence is damaged even more. The Tunisian Index broke emphatically below its 200-day MA yesterday and extended its decline today. A clear upward dynamic will be required to check the decline.
Email of the day (1) - on an addition to the Chart Library:
"Would you please arrange for the BGF World Mining Fund to be added to the chart library.?
"Having been a subscriber for several years I still find your service stimulating and thought provoking."
My comment - Thank you for your kind remarks. The Luxembourg listing of the Blackrock Global Investments World Mining Fund as well as the UK listed investment trust can be found in the Commodity Indices - Funds, ITs &ETFs section of the Chart Library.
Email of the day (2) - on another addition to the Chart Library:
"I cannot see Hutchison China Meditech (HCM.LN) in the Library. is it there , please?"
My comment - Thank you for this suggestion which has been added to the Chart Library.
The Chart Seminar - There are now only 4 places remaining for the Sydney seminar. We close bookings at 50 to ensure a good workshop environment for delegates. Once 50 is reached, further applicants will be put on a waiting list, in case there are any cancellations. The dates for all our seminars in 2011 are:
Singapore - April 28th and 29th
Sydney - May 3rd and 4th
London - May 19th and 20th
London - November 3rd & 4th
We are currently taking bookings for all four of these seminars. Sarah Barnes is on holiday this week but I will be answering her emails relating to The Chart Seminar. Anyone interesting in securing a place at any of our seminars can continue to contact us at [email protected].
The full rate is £950 + VAT. The early booking rate of £875 for non-subscribers expires on March 17th for the Singapore seminar and March 24th for the Sydney seminar. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.