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Mr. Sax is the managing member of a long short hedge fund based in Park City, UT. He has earned a national reputation for substantially outperforming the market in good times and bad. In addition to his financial acumen, Sax is recognized as a pioneer in the technology field. After several years... More
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  • Commodity Flash Crash Part II – Senators Demand Immediate Position Limits In Crude Oil 0 comments
    May 12, 2011 1:06 PM | about stocks: SLV, USO, GLD, AGQ, ZSL, DUG

    Feeling the fury of this bipolar market, the liquidation surge has arrived, right at the front door of the commodities family, with an emphasis on crude oil, gas, and silver. What started off as a sharp correction in silver is quickly turning into a sell-off of historic proportions.  With a four-day decline of almost 30% the selloff in silver is one of the most severe selloffs in the history of the metal’s futures contract. Sheer panic at the CME, 5 margin hikes in 8 days on Silver futures, is unheard of!! SaxAngle.com

    Although we saw signs of a recovery early this week, it was Deja vu in the commodities markets today, with another flash crash similar to the one last Thursday. Crude-oil futures settled below $100 a barrel Wednesday, and gasoline plunged nearly 8%, after the CME Group briefly halted trading in oil, heating-oil and gasoline futures on the New York Mercantile Exchange after the June gasoline contract hit its daily price limit. The CME also boosted daily price limits for crude oil to $20 and for heating oil and gasoline to 50 cents. According to James Williams, an economist at WTRG Economics “A short trading halt only occurs when there is high volatility in the price to give the market a little breathing space.”

    Is this a result of a tiny bounce in the US Dollar? A bigger-than-expected increase in U.S. oil inventories? Margin hikes? A sell-off in the equities markets? Flooding in Mississippi?

    According to Reuters, 17 senators have written to the CFTC to immediately crack down on excessive speculation in crude oil. The outright campaign to stomp out any non-stock trading is in full force. Pretty soon nobody will dare to invest any capital in commodities (or FX) for fear of an imminent 100% margin spike by the exchanges, causing the S&P to trade at 100x P/E, and letting China buy up every commodity at a 50% off. The message is clear: the government wants speculators out. Will the real long positions hold their ground, or will they cry uncle, forcing this mini flash crash into one of epic proportions….

    click Crude Oil chart to enlarge


    click RBOB Gas chart to enlarge


    click Silver chart to enlarge


    And from Reuters on the latest attempt to push all commodities to $0.00

    A group of 17 U.S. senators called on the Commodity Futures Trading Commission on Wednesday to immediately crack down on excessive speculation in crude oil markets by hastening planned rules to limit concentration.

    In a letter to the CFTC’s chairman and commissioners, the lawmakers said they wanted the agency to unveil a plan by May 23 to impose position limits in all energy futures markets, beginning with crude oil. The agency has already proposed such limits as part of the financial reform, but has not finalised them.

    The senators said the recent drop in crude oil prices, which fell nearly $10 a barrel in one day last week, defy supply and demand conditions. Oil prices bounced back almost $6 a barrel on Monday, but then fell more than $5 on Wednesday. Gasoline prices slumped by more than 8 percent.

    “The wild fluctuation could only be the result of rampant oil speculation, plain and simple,” said Senator Ron Wyden, one of the lawmakers who wrote to the CFTC demanding action, in some of the strongest language attacking speculators since oil prices surged to a record $147 a barrel in 2008.

    “The CFTC needs a plan to impose position limits on oil speculation before oil speculators drive up prices even higher just as Americans go to the pumps to fill up for Memorial Day weekend,” he said.

    The CFTC is weighing new rules that would slap limits on the positions of big commodity traders, capping how many futures and swaps contracts any one company can control.

    The Dodd-Frank law passed last July gives the agency the power to set position limits to curb excessive speculation in 28 commodities, including energy, metals and agricultural markets, “as appropriate.”

    But some of the agency’s own commissioners are skeptical the limits would prevent a run-up in prices, and experts and traders have long said the rules risk making markets more volatile by reducting liquidity.


    Stocks: SLV, USO, GLD, AGQ, ZSL, DUG
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