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Morgan Stanley: A little late with $150 call!
I had to clean my glasses a few times over the last few days as I looked up at one of my big trading screens in my office. After all, it’s not every day (actually anyday) we see an $11 move in crude oil.
If you add it up over a two day period we saw oil move almost $17 higher. I had to chuckle as I heard Morgan Stanley announce that $150 oil will be here by July 4th.
Talk about a lame prediction, hell I have been saying $150 oil for several months, if they want to impress me then they should tell me when it will correct. Don’t expect them to go out on a limb with that one.
It’s easy to tell someone there is a fire when you see their house burning down.
So here we are at $140 oil and gas was already at $4.50 near my house in Connecticut and that’s for regular gas. I fully expect when I go to fill up this morning that it will be over $5, easily.
Fill’er Up with a View
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More on my thoughts about $140 oil later this weekend. I will also be answering a lot of reader email too. So now some thoughts on the latest decisions from the CFTC. Tanner Emkhe of AGweb.com has some very keen opinions on the subject…Read on.
CFTC Writes A Good Bedtime Story
6/6/2008
Tanner Ehmke
Want a good bedtime story that will virtually put your kids to sleep in seconds? Read them the CFTC’s new initiatives to addressing the volatility in the marketplace. It’s a yawner.
Earlier this week, the Commodity Futures Trading Commission outlined their plan to address the extreme volatility in the commodity markets that has caused a lot of farmers and ranchers huge headaches - and fortunes – via gigantic margin calls. (Read more on Jim Wiesemeyer’s blog.)
And of course, let’s not forget about basis. The amount of distortion between the cash and futures markets can only be matched by the sound coming out of Jimi Hendrix’s guitar amp. Just recently, soft red winter wheat (SRW) in central Illinois was at $5.00/bushel. And the futures market in Chicago? Over $7.85/bushel for a July contract. That’s a basis wide enough to drive a truck through.
And oh, by the way, the price of food and energy isn’t getting any cheaper and the public is screaming for something to be done about it. Put another way, the public is saying, “Let’s find who’s responsible for high food and energy prices, drag them out into the street and lynch them.” That’s a lot of political pressure to deal with.
Aside from simply growing more food and producing more energy, what can really be done about the insanity of today’s marketplace? The CFTC’s initiatives outlined on Tuesday fall far short of addressing the problem.
Here’s basically what CFTC proposed: Stepping up the monitoring and reporting of index funds and swap dealers (read more about swap trades and index funds here) and holding position limits for speculators at current levels instead of raising them as planned. An investigation of the cotton market is also underway (a lot of blood was spilled when the price of cotton plunged more than 30%), lending practices in the agricultural industry are getting more scrutiny, and alternatives to managing price and basis risk are being explored for the benefit of producers.
The new initiatives will definitely provide more clarity and understanding of what’s going on in all this confusion – which is exactly what the industry needs when it’s tearing a hole in the rug while chasing its tail. But are we reaching the end of crawling out of this tar pit, or is this just the beginning?
I got the opinion of one guy who knows hedge funds pretty well. He ought to, anyway, since he works for one.
Here’s what he said: “There are so many variations on swaps. It’s probably going to be a little bit more challenging. It’ll be interesting to see how they’ll get their arms around it.”
Here’s what I heard: “This hairball of a mess is big and is only going to get bigger.”
So, what can we make of the CFTC’s blueprint? Minor tweeks around the edges of a bigger problem and an honest effort to quell the political storm, but something tells me this is hardly the end.
