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Old Trader is a 63 year old private investor, managing a retirement portfolio constructed to a) generate a high current yield, b) preserve capital, and c) increase capital. His methodology involves taking a "top down" macro view to identify favorable trends, and then engage in... More
  • First Silver...Now Oil? 9 comments
    May 9, 2011 7:53 PM
    I just got a Market Watch alert, saying that the CME will be raising margin requirements on oil, now. I guess they figured that jacking the margin rate was SO effective in crashing silver, that its time to see how well it will work for oil!
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  • Well now, if CME can manipulate lowering prices on specific commodities simply by raising the margin requirements, where's the advantage in the causual investor buying stocks in those sectors which reflect the current price of those commodities.
    10 May 2011, 03:12 AM Reply Like
  • Precisely. Zero.

     

    Of course, eventually we see what is now happening in silver, where insane margine requirements simply remove leverage as a factor in the market, leaving the exchanges without their most powerful tool (which should be used only to maintain an orderly market, NOT to try to engineer price controls in a commodity). Just as the Fed, having created zirp and even minus real interest rates, now cannot use lower interest rates to achieve their goals...

     

    The government is seeking to remove "speculation" from markets DEPENDENT upon speculative investment to function...

     

    I doubt they will be pleased with the end result, and I KNOW we won't be. I hope they (government + exchanges) back away from this crazy notion quickly, before its too late.
    10 May 2011, 08:48 AM Reply Like
  • Author’s reply » This will only effect any speculative influences on price. At the end of the day, fundamentals (supply/demand) will rule the day, imo.
    10 May 2011, 10:39 AM Reply Like
  • Author’s reply » tripleblack,

     

    Yep...at best, its a short term fix, reminiscent of the "bad old days" of gas rationing. That didn't work terribly well, either, did it?
    10 May 2011, 10:40 AM Reply Like
  • Today S 926 was introduced into comity. This bill would permanently put the east coast outer continental shelf off limits to drilling. www.govtrack.us/congre... That is our energy policy. We aren't even trying to achieve independence in energy or any other area. What we are doing is raising margin rates on crude oil to drive down prices temporarily. By temporarily I mean until after the 2012 election in the U.S. Team Obama is aware that when energy costs are high politicians on the majority side pay the price. If the POTUS is to keep his job he must appease Joe Sixpack with low prices on commodities, economic growth and low unemployment. High energy prices will not accomplish any of that and will in fact undermine all of those goals. When the CME used the margin tool to slam silver prices in order to save (seekingalpha.com/symbo...) it worked so well that they are now trying the same trick on oil. There is a drawback however. That can only be effective when weak hands and hot money are driving prices up. Once the margin gun has been used to kill off those players it ceases to be effective as we have seen with silver. July contracts closed up 3.7% in the face of repeated margin raising by the CME. Once equilibrium is reached market prices will prevail. After the election no matter who wins energy prices will go back up until a coherent, cohesive and effective energy policy and economic policy is put in place.
    10 May 2011, 06:16 PM Reply Like
  • Author’s reply » Robert,

     

    Thanks for the "heads up" on S 926. As you correctly point out, its just more political BS, rather than any meaningful addressing of critical issues.
    10 May 2011, 06:35 PM Reply Like
  • I could agree more on the short term nature of these moves. Artifically lowering the price of oil we only induce consumers to use more oil and guess where that leads us. I still see lots of large SUV's on the road with one person in them.
    17 May 2011, 02:50 PM Reply Like
  • I suspect from the above comments that few realize that the lower the margin requirement the low number of dollars it takes to manipulate the price. I seen an estimate that 4.5 billion could influence the value of Brent. I'd like to see the margin requirement go to 100%. Maybe we would see where real demand and supply meet.
    22 Sep 2011, 02:33 AM Reply Like
  • sethmcs: Greetings. Margins should be employed to stabilize markets while minimizing speculation and manipulation not as a clumsy method of price control.
    22 Sep 2011, 01:28 PM Reply Like
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