derryl

The Proposal to Limit Commodity Positions Will Hurt Free Markets and Economic Growth

I'm with G. L. Turner and Tom Armistead on this one.

Barbarous wrote, "No one can consistently pay "too high" a price for a commodity or other investment and hope to have any capital left to invest tomorrow."

This is false. A speculator who is too big to fail will be propped up by taxpayers's money. Barbarous also wrote, "Anyone willing to risk their capital should be allowed to invest as he sees fit."

I agree. The key phrase is "risk their capital". GS and JPM risked their capital and lost. In a free market they would now be bankrupt and out of business. Meanwhile they are still in business, guaranteed by taxpayers to never lose, and GS makes record trading profits last quarter on its front-running software and other advantages that are illegal for you and me to practice.

None of us here on Seeking Alpha are socialists. We are all capitalists trying to make some money and trying to understand the best ways of doing that. Most of us are happy (though some might be jealous) to see each other making money by understanding the markets and doing smart trades. What we object to is that there is one set of rules when we risk our capital, and an entirely different and more favorable set of rules when the big boys risk their capital.

I think in commodities markets those who are too big to fail should also be too big to play. I agree with author Zachary Scheidt and Barbarous that us ordinary investors cannot corner any markets or individually affect commodity prices. But the new CFTC rules are not designed to constrain us. They are designed to constrain players who can affect the prices we pay for gas and bread, even though they produce no oil and grow no wheat.

These large speculators have enough money to move into a market, manipulate the price of a commodity, suck large amounts of money out of that market, and leave legitimate buyers and sellers of commodities poorer, not better off, for all this additional "liquidity" that has gone in and raped this market.

I agree with a point David Merkel made today: inasmuch as a legitimate hedger requires someone to take the other side of the trade, speculators' liquidity is welcome. But once you get to the point where you have speculators trading with speculators, that has gone beyond serving any economically useful purpose and is rightly recognized as simply gambling at our expense and should not be allowed.