| Thanks for visiting. I hope that after you have read the gambit and understand the importance of commodities speculation and the detrimental effects that it has on the economy that you will join me in my efforts to press the President to act to correct this injustice by signing my petition.Thanks in advance for your support. mh
“I have been successfully managing a long-short equity hedge fund for over 12 years and I have extensive contacts on Wall Street and within the hedge fund community. It’s important that you know that I am not currently involved in trading the commodities futures markets. I am not representing any corporate, financial, or lobby organizations. I am speaking with you today as a concerned citizen whose professional background has given me insight into a situation that I believe is negatively affecting the U.S. economy While some in my profession might be disappointed that I am presenting this testimony to Congress, I feel that it is the right thing to do.”
“You have asked the question “Are Institutional Investors contributing to food and energy price inflation?” And my unequivocal answer is “YES.” In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action.”
“Commodities prices have increased more in the aggregate over the last five years than at any other time in U.S. history. We have seen commodity price spikes occur in the past as a result of supply crises, such as during the 1973 Arab Oil Embargo. But today, unlike previous episodes, supply is ample: there are no lines at the gas pump and there is plenty of food on the shelves.”
“If supply is adequate - as has been shown by others who have testified before this committee - and prices are still rising, then demand must be increasing. But how do you explain a continuing increase in demand when commodity prices have doubled or tripled in the last 5 years?”
“What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.”
“These parties, who I call Index Speculators, allocate a portion of their portfolios to “investments” in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as “Index” Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices – the Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones – AIG Commodity Index.”
“One Page Summary of Testimony”
“2. Since their creation in the agricultural context decades ago, it has been widely known that, unless properly regulated, futures markets are easily subject to distorting the economic fundamentals of price discovery (i.e., cause the paying of unnecessarily higher or lower prices) through excessive speculation, fraud, or manipulation. The Commodity Exchange Act (“CEA”) has long been judged to prevent those abuses.”
“In examining the questions relating to the high price of energy to American consumers, it is useful to remember that as of January 2002, the cost of crude oil was @ $18 a barrel; by the end of 2005, it had risen to @ $50; and, as of today, the price, which has recently flirted with a record high $100 a barrel, now rests at @ $88 per barrel. In early 2004, the average retail price of gasoline of which crude is a major component was @ $1.50 per gallon. As of today, the average price of gas is slightly below $3 per gallon, with substantial speculation that it will soon soar to over $4.00. Since March 31, 2007, or the “close” of last winter’s heating season, the wholesale price of heating oil has risen 32%, from $1.88 per gallon to a record high of $2.77 per gallon. As I show below, these soaring price rises continue despite the fact that supplies of oil both in the U.S. and worldwide remain relatively stable.”
“The 2006 PSI Bipartisan Staff Report on Crude Oil and Natural Gas Speculation.
In June 2006, the staff of the Permanent Subcommittee on Investigations (“PSI”) of the Senate Homeland Security and Government Affairs Committee issued a bipartisan report making clear that the dramatic increases in commodity prices described above were not attributable (as conventional wisdom insisted at the time) on problems of supply/demand. Instead, price spikes were caused by dysfunctionality in the recently deregulated energy futures markets and in the maladministration by the CFTC of its no action process pertaining to purported “foreign boards of trade.” In that report, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat, the staff showed, for example, that “U.S. oil inventories are at an eight year high and OECD inventories are at a 20 year high,” and that the “last time crude oil inventories were that high in May 1998 – at about 347 million barrels – the price of crude oil was about $15 a barrel”,”
“Over 30% of the U.S. delivered futures benchmark largely determinant of the price of oil here and throughout the world is now being traded on an exchange headquartered in Atlanta, with trading engines in Chicago and trading terminals placed all over the U.S. Relying on an outdated 1999 CFTC staff no action letter granted to a now defunct U.K. subsidiary, the U.S. owned Intercontinental Exchange (ICE) and the CFTC assert that United Kingdom regulators, rather than the U.S. CFTC, should have primary oversight of that exchange. CFTC permission has now also been granted to the Dubai Mercantile Exchange, in partnership with U.S. owned NYMEX, to begin trading that same U.S. delivered contract in the U.S. under the regulatory oversight of the Dubai government, creating the ‘London/Dubai’ Loophole for U.S. speculation.“
RBOB is an acronym for "reformulated gasoline blendstock for oxygen blending." It is the benchmark gasoline contract on the New York Mercantile Exchange, so basically it is the wholesale price of gasoline before blending for different areas and climates.
From Wikipedia: GAMBIT is defined as “1. (in chess) An opening in which a player makes a sacrifice, typically of a pawn, for the sake of some compensating advantage.
2. A device, action, or opening remark, typically one entailing a degree of risk, that is calculated to gain an advantage.”
If they answer in the affirmative, then see that those rules are published immediately. Begin a rapid schedule to unwind these speculative positions and normalize the markets.
If they reply that they haven’t had enough time and they want to complete all the rules governing the market, then the President should object. This overarching rule must be sacrosanct and should be codified as such without equivocation and must be independent of and all other rules and regulations that may follow. This simple overarching rule should have been published and adapted immediately after the first meeting. Maybe :
The Commodity markets in the United States of America and all of its territories, are for one purpose only, the buying and selling of fixed contracts of commodities vital to the welfare of our nation and all of it’s people. To that end all markets made in commodities will be governed by the basic principal that commodity markets cash and futures are for the use of the principals: the producers and consumers of the commodity- the bona fide hedgers. All speculators allowed to participate in the markets will be subject to position limits that limit their open interest to no more than 35% of the open interest in said market in the aggregate or no more than 35% of the open interest in any single contract. This limit may only be exceeded if agreed to by the bona fide hedgers in the market. No rules, regulations, stipulations, administrative actions, special allowances or dispensations of any rules may be established which abrogates, nullifies, invalidates or minimizes this basic tenet will be allowed. Any market that trades in any commodities with physical deliveries in the United States of America and all of its territories shall be subject to this rule regardless of location or jurisdiction. No derivative, swap, contract, index or fund will be allowed that influences trading in the market of any commodity. Any and all funds, ETFs, ETNs, swaps, other synthetic derivatives or financially engineered structures or contracts that tracks or replicates any commodity will not be allowed due to the speculative influence on the cash and futures market for said commodity. Any financial instrument or structure that influences or effects the cash or futures market for a commodity by manipulating, controlling, cornering or hoarding of physical commodities shall be subject to negation by this rule.
If they reply in the negative then the President should request their immediate resignations, if they refuse then fire them all on the spot. He should assign one of the most senior staff to acting commissioner. Instruct the new acting commissioner to immediately rescind any and all special exemptions that have been passed by administrative action in contradiction to the law and the intent of congress. Instruct him to honor all current contracts that exist because of those exemptions but to not allow any rollovers or continuation of them. Instruct the acting commissioner to begin an immediate review of any and all administrative actions involving unregulated markets that operate in the U.S. or its confines for possible changes that violate the commodities trading laws and the jurisdiction of the CFTC. Appoint 5 new commissioners to head the CFTC awaiting the consent of the senate.
Shurtleff v. United States, 189 U.S. 311 (1903) (“In the absence of constitutional or statutory provision, the President can, by virtue of his general power of appointment, remove an officer, even though he were appointed by and with the advice and consent of the Senate.” )
Myers v. United States, 272 U.S. 52, 53 (1926) (“The President is empowered by the Constitution to remove any executive officer appointed by him by and with the advice and consent of the Senate, and this power is not subject in its exercise to the assent of the Senate, nor can it be made so by an act of Congress.”)
The congressional Republicans will go ballistic and rage against the president for over stepping his authority. The tea party will call for impeachment. The Democrats will apologize. The people will not really understand.The Secondary Reaction:
The secondary reaction will start with the people and their realization that something has finally changed for the better. While members of the Wall Street crowd will rail against new regulations and the administration’s animosity towards business, the real bankers will begin to realize that an enormous burden has been lifted from the public and small businesses and that that their lot will improve as main-street improves. Most of the business community will begin to understand that this new dynamic has tilted the financial landscape back toward real businesses and that as demand returns they will begin to make new investments. As the business community changes its view they will drag the Republicans leadership along with them, kicking and screaming. The tea party will call for impeachment. The Democrats will apologize.