Mark Anthony

The Global Oil Scam: 50 Times Bigger than Madoff

The paper trade does rig the commodity price but the rigging goes both directions and is always temporary in nature. Long term, the physical supply/demand fundamentals always play out.

Once again, when it comes to commodities, if you do not hold the physical stuff, you are just gambling against other traders using paper. If you don't hold it you don't have it.

The palladium spike story of 2000 is a good lesson. Those held paper futures contract actually lost money, instead of made profit, even though palladium price spiked, because they could not take the delivery:
www.stillwaterpalladiu...

Read my recent instablog analysis on why trading paper contracts of commodities is nothing but gamble:
seekingalpha.com/autho...

BTW do you guys see the spike of palladium price and share price of SWC in recent days? The palladium story this time is much better than the rehearsal of 2000/2001.

On Nov 15 11:47 AM FloridaBoy2 wrote:

> Thanks for the article.
>
> Mark Anthony wrote:
>
> "But the bottom line is there is fundamental reasons that the commodities
> market attracted so many speculators. At the end of day, speculators
> who play with paper is merely gambling against each other. Only investors
> who hoard the PHYSICAL commodities, the quantity of which is limited,
> stands to gain in the long run."
>
> I watch the price of gasoline move with the market. The paper players
> run the price up or down and we pay for it at the pump.
> The price at the pump does not reflect supply & demand it is
> the result of the speculation. What am I missing?

The Global Oil Scam: 50 Times Bigger than Madoff

Stonebridge:

Clearly you do not understand commodities investment and you do not even understand the comments I posted previously.

It is not insane to labor and sweat to take physical delivery and store the actual commodities. I bought tellurium from ASARCO. I am one of the lucky one who could buy, before that opportunity is shut. I am not going to sell to Intel or any one, until the industrial shortage grow to the extreme that a couple dozen industrial users fly over and line up at my front door to beg me for that few hundred kilograms of tellurium. The whole point is if an industrial commodity run into severe shortage, you really can NOT expect to buy from regular suppliers, nor can you buy paper contract and expect it to be delivered. You can write as many paper contracts as you have paper, but the physical commodity is limited.

It's like the music chair game. Every one dancing around assuming there will be that one chair belong to himself when the music stops. Every one laughs at me who sit there refuse to dance. But at the end of day I am the one knowing I have a guaranteed chair, having sit there the whole time and never moved my butt.

Speculators who play with paper merely pocketed money from each other's pockets. It's zero sum. Was Goldman Saches and other big Wall Street players stupid when they spend money and actually hired giant oil tanks to store the physical oil, when oil was at $30 a barrel? Wouldn't it be easier they just punch a few computer buttons and buy some futures contracts? Why did they bother with all the physical hassle? Because that is the only way you can actually make some money.

I keep hearing radio ads how you can make money opening up an internet store. You do not need to handle the physical goods, you don't need to manage your web site or interact with customers. You don't need to do anything. You just receive a big check every month. It's get rich quick without any labor. A lot of people actually believe that. You are probably one of them.

Again, hoarding the real stuff is the only way to profit from a commodities boom. I have learned some lesson from UNG:
seekingalpha.com/autho...


On Nov 12 06:12 PM Stonebridge wrote:

> Mark Anthony :
>
> You make an interesting proposition, but I think there are a few
> flaws with your reasoning. First, individual speculators CAN make
> profits on commodity futures. For example, when oil prices were very
> low they could have gone long a long-term futures contract and sold
> it when the price of oil advanced dramatically. When the price of
> oil was very high ($130) they could have shorted the long-term futures
> contract and then closed their position after oil had dropped to
> $50/ barrel. Yes, they would be taking their profit from other speculators,
> but so what? They are still making a profit. They do NOT need to
> continually roll their positions or always be invested in a single
> commodity; jusy buy low and close the contract when it is high.
>
>
> Trying to take physical delivery and storage of most of the hard
> assets is insane. Furthermore, have you ever actually been able to
> SELL your telerium? Why don't you try it sometime? I've got bad news
> for you. Most producers who need a commodity only buy it from certain
> suppliers OR they buy futures contracts and take actual delivery
> when they need it. Intel will NOT be buying telerium in small quantities
> from an individual investor like you, unless you offer it to them
> at a big discount to the market price! Why don't you actually try
> to sell your telerium hoarde to Intel sometime? You will not be able
> to. They will laugh in your face. So all your telerium profits are
> imaginary since you can't actually sell the stuff to anybody and
> you are not a computer chip manufacturer yourself. You wasted your
> money on a bunch of junk that you can never sell!!!

The Global Oil Scam: 50 Times Bigger than Madoff

I do not advocate breaking the laws. You will NEVER have 50M people stop paying the tax, not even close. But you bet you can see 50M people stop paying their credit card bills.

The difference is there is no tax to pay when people do not have an income. You only pay a tax when you have income. So in that sense the people are not cornered.

But in the case of the credit card industry. They squeeze people hardest when they are hardest hit. The next day after you lose your job, they bump up your credit card interest rate to 30%+ and tell you to immediately pay a larger monthly bill. What do you think will happen when people are cornered? They revolt!

People are not revolting against the federal government because they have not been cornered yet. Revolution happens only when people are absolutely cornered and have no other choice. That's the nature how things work.

Until the people wake up, nothing is going to change. It takes a much bigger shock and pain to wake the American people up.

On Nov 12 09:56 AM bobbobwhite wrote:

> My main concern at this stage in the disintegration of the American
> way of life is why tens of millions of our citizens have not joined
> together in a mass tax revolt. If 50 million people stopped paying
> taxes, what could the gov't do but capitulate?
>
> Fear and lack of courage is what soft living causes, every single
> time in history......unorganized and cowardly masses so afraid of
> losing their present quality of life, even as that same quality of
> life erodes before their very eyes and they perpetually do nothing
> of significance to prevent it. Pathetic.

The Global Oil Scam: 50 Times Bigger than Madoff

I absolutely despise the crooks at Wall Street. My comment should in no way be taken as an endorsement of Goldman Saches. No one likes a manipulated market. Illegal activities do occur on a daily basis in the marketplace.

But the bottom line is there is fundamental reasons that the commodities market attracted so many speculators. At the end of day, speculators who play with paper is merely gambling against each other. Only investors who hoard the PHYSICAL commodities, the quantity of which is limited, stands to gain in the long run.

I have very good discussion why that is the case:
seekingalpha.com/autho...


On Nov 11 03:47 PM Mark Anthony wrote:

> I guess to be fair, the consumers should also send a big Thank You
> note to Goldman Saches for knocking price down to as low as $30 per
> barrel, saved consumers quite a bit of money during that few brief
> months.
>
> No one thanks Wall Street speculators for pushing oil down to $30
> and save every one money. Now the prie is pushed to $80, I hear no
> producers thank Goldman Saches for letting them make more profits.
> But when the volatility moves against you, every one blames on the
> speculator.
>
> The fact of the matter is the "round trip trades" does not generate
> net commodity demands, and hence does NOT change the supply/demand/price
> fundamentals in the long run. It generate short term volatilities.
> Volatility works on both ways, it could price too high and could
> push price too low. It forces consumers to pay more at a time and
> pay less at another time. Long term, it cancels out. I as a consumer,
> will accept the volatility and I would not complain when I have to
> pay more, nor would I need to thank any one when I end up paying
> less than I expected.
>
> It's free market principles at work.
>
> On Nov 11 03:00 PM Shaftsinker wrote:

The Global Oil Scam: 50 Times Bigger than Madoff

I guess to be fair, the consumers should also send a big Thank You note to Goldman Saches for knocking price down to as low as $30 per barrel, saved consumers quite a bit of money during that few brief months.

No one thanks Wall Street speculators for pushing oil down to $30 and save every one money. Now the prie is pushed to $80, I hear no producers thank Goldman Saches for letting them make more profits. But when the volatility moves against you, every one blames on the speculator.

The fact of the matter is the "round trip trades" does not generate net commodity demands, and hence does NOT change the supply/demand/price fundamentals in the long run. It generate short term volatilities. Volatility works on both ways, it could price too high and could push price too low. It forces consumers to pay more at a time and pay less at another time. Long term, it cancels out. I as a consumer, will accept the volatility and I would not complain when I have to pay more, nor would I need to thank any one when I end up paying less than I expected.

It's free market principles at work.

On Nov 11 03:00 PM Shaftsinker wrote:

> While you are making good points, you have not addressed the issue
> of the round trip trades the author was discussing, which I believe
> was the focal point of his argument that consumers are being scammed.
> From my understanding it's not at all pure futures speculation where
> there is a winner and a loser like you were rebutting earlier.<br/>
>
> Yes it makes sense to stockpile oil at $30 and sell it at $80, but
> it becomes a scam when you inflate the price to $80 by participating
> in a series of neutral trades that put on the facade of activity
> in the oil trading market.

The Global Oil Scam: 50 Times Bigger than Madoff

Philip:

Further, on the issue of Wall Street bankers stockpiled 125M barrels of oil you think that skewed the global oil supply and demand. The opposite is true. They did not skew the true supply/demand, they help to restore the true supply/demand picture.

How could you blame they for stockpiling 125M barrel of oil and seek profit from it. Sure no one wants that 125M at $30 a barrel. So they buy since no one else wants it, what's wrong with it? And later, the same oil that no one wants at $30, now some one wants to have at $80, so they sell, what is wrong with it? It's free market principle at work. Thanks to the 125M hoarding, the price of oil did not drop below $30, and because of availability of this 125M precious hoarded up, there is now extra supply so that oil has not raise to more than $80 yet.

It's free market principle at work. Buy when no one wants it, and sell when every one wants it. That's how things work and how one can make money, LEGALLY. The world is an idiot that it does not want that 125M at $30, and then wanted to pay $80 a couple of month later. Some one has to make that money and restore some sanity.

The Global Oil Scam: 50 Times Bigger than Madoff

Philips:

I disagree with most of what you say. Yes there is speculation and deliberate manipulation in the commodities futures market. But NO, there is no scam here. It's part of market volatility as a result of free market principles at work. Some speculators make money but there are also some speculators lose money at the same time.

Peak oil is real. Oil price is going to go much much higher. If you think oil price has been bumped up artificially and it is going to crash down, well, you are WELCOME to speculate the opposite way and enter a short position against the oil bull speculators. You might even make money if you speculate right on the bearish side.

Both you and I agree with one thing, the speculators in the commodities futures market never actually take delivery so there is never actual physical demand.

But exactly because no physical commodities are involved, speculators have NOT looted the consumers of physical commodities, they have merely looted each other's pocket. It's either bull speculators take money out of bear speculator's pocket, or vise versa. It's a gamble between two groups of speculators, One group write future contracts they they know they could never deliver the physical stuff, another group purchase future contracts that they know they will never ask for delivery of the nasty substances. It's a zero sum-gamble and fist fight between speculators and speculators.

Let me put this way. If I today pay $6 a gallon gasoline versus $3. As a consumer I paid extra. But I bought the physical thing. My money did NOT pay into Goldman Saches's pocket, as they did not sell gasoline to me. My money is paid to the producers who produced and supplied that gallon of gasoline to me.

The only time I paid money to the Wall Street, is when they actually HAVE interacted with the physical commodities. If Goldman Saches has hired some oil tankers to stockpile oil at $30 and then sell them at $80. I pay the price for $80 oil and the original oil producer get paid only $30, and Goldman Saches, as a middle man, get pockets the difference.

If they have not hires a oil tankers. Then the oil transaction is directly between the oil producers and me, and gain and loss is between me the consumer and the producers, not a penny of that money enters Goldman Saches' pocket. If they pocke some money, it's because they bet bullish on the paper futures market, and you, Philips Davis, betted bearish and you lose your betting money to Goldman Saches.

Please read here why the only sensible way of investing (versus gambling) in commodities, is to physically HOLD the stuff:
seekingalpha.com/autho...

If you don't hold it, you don't have it.

When lots of money chases a narrow market of commodities, the end result is extreme volatility. But unless physical possession is taken, it does not affect physical demand and does not affect long term prices.

For example you can "invest" a billion dollars or a trillion dollars in the global palladium market. But there are only less than a million ounces available for investors to buy. Only those who bought the physical ounces will rip long term profit at the end.
seekingalpha.com/autho...

Is There Enough Natural Gas?

On Apr 28 08:04 AM Michael Fitzsimmons wrote:

> markanthony: i respect simmons, and he has been correctly warning
> the world about peak oil. however, when it comes to natural gas,
> who am i going to believe? hefner, CHK, COP, or simmons? i'll go
> with hef. he's been drilling, exploring, and producing nat gas for
> over 50 years. he's been completely vindicated on the far reaching
> estimates he gave back in the 1970s to refute exxon mobil's congressional
> testimony. ultimately hefner's genius was his ability to disassociate
> nat gas from the simplistic "fossil fuel" category - that nat gas
> has a non-biologic origin and is therefore vastly more abundant that
> historical and traditional petroleum analysis would indicate. simple
> as that concept is, it was an absolute eye-opening revelation to
> me. after reading in his book the logic behind his conclusion, i
> find it hard to debate and believe he is absolutely correct.

Interesting theory. But it can not stand up to scrutiny. There is methane of astronomical origin, like the methane on uranus. However the earth is too small and its gravity pull too weak to trap methane in its atmosphere, let alone allow it to condense in the earth crust. I have thought about the abiotic origin of natural gas but I am not convinced.

But the origin doesn't even matter. The fact of the matter is natural gas wells are becoming increasingly expensive to drill, and each well starts to decline rapidly after just one or two years of production. Natural gas price must raise to reflect this reality of ever costly natural gas production.

Is There Enough Natural Gas?

This presentation is more recent. Note the description of shale gas, the reason for recent natural gas supply surge, and why it can not last:

www.simmonsco-intl.com...

Is There Enough Natural Gas?

On North American natural gas supply, people definitely need to read this summary by Matthew Simmons. This is a completely different picture than the one painted by optimists:

www.simmonsco-intl.com...

Is There Enough Natural Gas?

I meant to say a cube of 2040 kilometers. "Kilograms" was a typo.


On Apr 27 06:36 PM Mark Anthony wrote:

> The main article quoted a number "300,000,000 TCF" as global natural
> gas reserve. Do you know what kind of astronomical number it is?
> That is a volume of a cube of 2040 kilograms on each side! You get
> the number exagerated by many many orders of magnitude.

Is There Enough Natural Gas?

I read the USGS document again, and realized that it is talking about something totally different. It is talking about methane hydrate, a potential energy resource from the bottom of the oceans. This is something under study. But current there is NO technology available to produce methane hydrate and not a single cubic feet is produced so far. So the discussion of methane hydrate is totally irrelevant to the discussion of current natural gas price.

I am sorry that the author confused the methane hydrate reserve with natural gas reserve. The later is MUCH MUCH smaller.

Is There Enough Natural Gas?

OilFinder:

The author did quote the number correctly from the USGS document you mentioned. But "from 100,000 to almost 300,000,000 TCF" is hardly a legitimate estimate, as the upper bound is 3000 times higher than the lower bound. I think it's probably a typo in the USGS document. It probably meat to say "100,000 to 300,000 TCF". That's more like it.

In any case, now is time to buy UNG regardless of the size of the potential reserve. The current natural gas price is simply way below production cost and hence is unsustainable. For any commodity, a price far below marginal production cost is always unsustainable.

Is There Enough Natural Gas?

How could the author arbitrarily throw in an astronomical number without first making sense what he is talking about?

The main article quoted a number "300,000,000 TCF" as global natural gas reserve. Do you know what kind of astronomical number it is? That is a volume of a cube of 2040 kilograms on each side! You get the number exagerated by many many orders of magnitude.

A Natural Gas Centric Strategic Long-Term Comprehensive Energy Policy

The only real salvation to the world's energy crisis, is Low Energy Nuclear Reactions (LENR). You must watch a very important CBS 60 Minutes program just aired this past Sunday, April 19, 09. Follow the link in this article to watch it:

The True Rationale of Commodities Supply and Demand
stockology.blogspot.co...

I believe UNG is about at the bottom and it is time to addgressively add positions in UNG.