The Motley Fool Discussion Boards
Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Intellectual indolence of those who attack Spec||Date: 7/28/2009 10:12 PM|
|Author: MrArbitrage||Number: 300916 of 479506|
July 28, 2009
The intellectual indolence of those who attack speculators
The big story this week: regulators considering setting limits on Wall Street speculators
Forget additional position limits. Ceding that kind of authority to elected imbeciles is probably just as bad if not worse than the actual disease. It is a slippery slope, like allowing these buffoons to determine salaries. I think I would prefer to see the leverage abated. I have heard compelling arguments on the “pro” side of changing margin requirements but not too many “cons”. I don’t think that controlling copious quantities of commodities which are essential to human sustenance -with 10 cents on the dollar- is some kind of inherent right derived from natural law.
As I wrote back on June 20th 2008 in my piece called “Speculation: Good for America but Manipulative Analysis = Crime against Humanity”(at http://tableofwisdom.com/MrArbitrage_on_Market_.html ) – the problem is fallaciously being attributed to “speculators” by intellectually lazy people like Bill O’Reilly. The demonization of “speculators” in the generic sense is quite dangerous to our free markets. If the mere presence of speculators CAUSED the vexing bubble in oil that we recently experienced, how do you explain the MAJORITY of time throughout the 20th century when there was relative equilibrium in prices? We had speculators THEN. This begs the question -WHY- was there stability during most of those years despite the presence of speculators?
The key to this imbalance (according to me) is the presence of two extreme variables that were NOT the norm for most of the past century and a quarter:
It is not normal to have a powerful company like Goldman Sachs permeating every level of state and federal government. Historically we have seen powerful industries with deep pocketed lobbyists (which I’m personally ok with). However, this parasitic company not only has access to legislators and presidential appointees – they have actually BECOME the most powerful people in our government. One might say that we the people are the “host”. The Goldman conspiracy is an interesting topic but what does that have to do with anything? In my aforementioned piece from June 2008, I elucidated on how I believe that Goldman may bear a substantial amount of responsibility for the pain the world suffered last year and which may have been the proverbial straw that broke the camel's back.
What the simple minded media overlooks in their critique is that WHILE Goldman was apparently making a fortune trading oil last year, their ANALYSTS were ubiquitous throughout every form of media talking up the price of oil while their trading division reaped a fortune at the expense of their fellow countrymen. As people in some parts of the world suffered starvation and Americans went broke from gas prices and a bursting real estate bubble – Goldman analysts threw gasoline on the fire as they daily inveighed on the direction of oil. These “analysts” never proffered any due diligence with quantifiable numbers to support their suspiciously timed and arbitrary price targets for “$200 per barrel within a year”. The sophistication of their due diligence, at least that which proliferated the media was as prosaic as “China is growing rapidly”; therefore we were to believe that there could be no ceiling to oil prices. No price was too high! If they were able to drive oil to $200 per barrel, I have little doubt these cheerleaders would have called for $300 and so on.
When the fundamentals clearly contradicted their propaganda, they began to advance the most absurd “catalysts” to keep it going. I had envisioned them unwinding their positions while publicly trying to convince us that stories like the Somali Pirates would keep oil prices going ever higher. I cynically imagined them praying for a hurricane to hammer the gulf of Mexico because once the public built an immunity to the China story, that’s all we heard about were Pirates and their hurricane fear mongering about what COULD happen IF…
How that ties in with the “Goldman conspiracy” is simple. I believe that Goldman is so firmly entrenched within our governments, federal and state, that arguable crimes against humanity have been tolerated in a way that never would have been if it were not for their control and influence within the most powerful governmental circles. That is not to say that they could have convinced their colleagues in government to act in collusion. It could all transpire without impunity by simply having the power to manipulate the markets with “analysis” that was a direct- conflict of interest – while having their colleagues in government turn a blind eye. I fully expect nothing to happen to Goldman aside from a possible tongue lashing as certain gutless politicians posture before the cameras in hope of a nice sound bite making its way to their constituents while knowing they will not do anything of substance in the end.
2. The other extreme variable that has played a part in fomenting the oil bubble is the Federal Reserve keeping interest rates at unnatural lows. Every time they have done it, they have created new bubbles. That combined with manipulative analysis created a perfect storm. As we ran through bubbles in the other major asset classes, this potential energy created by the Fed was easily converted to kinetic energy with the guiding hands of the unscrupulous. As an aside, the bubble they are about to create next will be in junk bonds.
Again, there is nothing wrong with speculation – absent manipulation. I feel embarrassed for people like O'Reilly and Obama when I hear them ignorantly (or deviously in Obama's case) blaming this on speculators. Yes, speculators carried it out but they would not have been induced into it if it were not for Goldman, J.P. Morgan and the Federal Reserve who essentially spiked their drink with an overdose of ecstasy. Absent those two variables, speculation would never have gotten out of control the way it did. The hearings held by the Commodity Futures Trading Commission this week need to stop attacking capitalism and focus on the conflict of interest and manipulation by these firms. It was no different than the way the wire houses like Merril had their analysts knowingly pumping garbage stocks while raking in investment banking fees. Henry Blodgett went to jail for that and the only people hurt were those who chose to speculate on their bad information. In the case of the commodities, the people who were hurt, even killed in riots globally were NOT those who chose to dabble in script. These victims were just trying to eat or fill their gas tanks. THAT is what makes THIS a “crime against humanity. It is nothing short of treachery and people need to be investigated at these firms to see what kind of communication may have gone on between analysts, traders and fund managers at these firms.
There is nothing wrong with self-interest when the people have the morality essential to self government, liberty and capitalism, without which we can have none (according to our founders). The golden rule is the only rule that will preserve our nation and our economy.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|