Bernie Sanders Wants to Control Speculation

Senator Sanders declares:

“Do the American people want us to stand up to oil speculation? Of course.”


22 thoughts on “Bernie Sanders Wants to Control Speculation

  1. I guess if you are a poor populist living in a double wide with a 4th grade education …rich guys “speculating” to make money sure sounds “unfair” and why not let Uncle Bernie “fix” it all?

  2. Michael, I need to respectfully disagree with you on this subject. Sen. Sanders is spot on with this one. His proposed legislation isn’t targeted at small traders-though this issue makes all traders look guilty by association. It’s the huge “banks” who are trading oil in offshore accounts in violation of the law and speculative position limits. Unfortunately, the former Enron traders now working for the banks are ruining the party for all traders.

    What we are witnessing in this situation makes the Hunt brothers look like choir boys. Interestingly enough, David Harding of Winton Capital alluded to this specific issue in a recent interview on Squaw Box and thankfully he’s not alone:

  3. As much as I dislike it, this is a popular view. Just Google speculation+ban+oil and you’ll see what I mean. In this tightening regulatory environment my guess is that we might at some point see tighter margin requirements and position limits just short of an outright ban. I just hope I’m wrong.

  4. Steve, slippery slope…the subjective powers he wants to give CFTC…I know where that leads…worse markets.

  5. Michael, what Sen. Sanders is really trying to address is fraud in the oil markets. It is unfortunate the markets don’t address this themselves, there wouldn’t be a need for Congress to regulate. Again, I don’t see how what happened to the price oil in 2008 and what may be happening again in 2011, is any different from what the Hunt brothers nearly got away with in ’79 and ’80. See the video:

    If when all the dust settles the too big to fail banks (which have only gotten bigger since 2008) are forced to take their medicine and simply go belly up, that’s one thing. But they are too big to fail investment banks and they can take the world economy with them when they fall or so we are led to believe.

    The mistake I don’t want to make is to think that my interests as a trader and the interests of the too big to fail banks, who are secretly trading enormous oil contracts against the speculative position limit rules in their attempt to corner the markets, are one and the same.

    As David Harding alluded to in the video link posted earlier; if we follow the spec limit rules then we have nothing to worry about. It is only when rules are broken and transparency is lacking, that we all (mostly small traders – and that includes David Harding multi billion fund — a small fish in a big banker’s ocean of money) suffer.

  6. I saw this line from Sanders:

    “Take any other action the Chairman of the Commission determines is necessary to eliminate excessive speculation.”

    THAT is pure subjective power in the hands of politicians. THAT is nuts.

  7. hm…I was under the impression that speculators were needed so oil companies (among others) would have someone to take the other side of their hedges.

  8. Not so sure that Banks now trade such large commodity positions, as opposed to maybe 10 years ago.Prop trading has really been cut down at banks.That is why so many top traders are going off and starting their own funds.Really think that people need to wake up and smell the coffee!They all probably have pension funds etc.Don’t tell me that a lot of pension funds don’t have positions in commodities like oil.But surprisingly nobody ever calls pension funds by the name of speculators.Double standards in my opinion.

  9. Mark, that’s the point. No one knows how many contracts investment banks are trading. It’s all being done in secret — in clear violation of rules. Think that is what David Harding was referencing in the video link above when he addressed the issue on CNBC not two months ago:

    Host: “…So do I have you to blame for once oil get started and nothing else is working, oil is going to go higher and higher… a lot of people blame trend followers for the pendulum swinging much further than it should on a fundamental basis?”

    David Harding: …“we are limited in the role we can play in the commodities markets by U.S. speculative position limits, which we conform to and operate within. So there is a limit to how big our positions can be and they’re certainly tiny compared to, you know, your major investment banks.”

    “Excessive” means in violation of the rules set forth by the CFTC:

    Either we have rules that all traders follow or we don’t. But we should not complain about more regulation from congress, when we close our eyes to the big investment banks that violate the rules. The sad thing is the big investment banks aren’t even trend followers, yet as the CNBC host suggests, trend followers are being blamed.

  10. The guy in this video clip is called Bernie.Enough said, I think.There is nothing wrong with speculation or even cornering markets, its been happening in all industries(Microsoft,Google,Cargill,Tesco).Don’t be fooled by this guy.He is probably long $100m of oil through his offshore hedge fund.Speculators make the market.You will never kill speculation.All capitalist countries need to encourage people to take risks, well managed risks with a stop loss built in.

  11. So, a speculator? What about the Airline speculating oil prices will go higher buying contracts? Oil company locking in prices fearing a drop in prices?

    What about the local oil company looking to hedge to deliver steady prices to its customers?

    Who are the speculators?

  12. A politician will lie or say anything to be elected. They are opportunistic parasites that cater to the whims of the herd to get elected.I can’t beleive people still fall for this propaganda.Every market has it’s cycles. commodities were in a bear market for 2 decades,now they are in a bull market. To blame speculators is nothing but theatrics. As for fundamentals, anyone looking at this web site should know that fundamentals are a poor explanation of price movement.

  13. There is a cliché that fits perfectly here. The banks with their unregulated billions of OTC Derivative Swaps invested in oil contracts are “killing the goose that lays the golden egg”. While you pretend what bankers are doing is in your best interests, don’t complain when congress shuts off the spigot for everyone but the banks.

    The bankers have lobbyists that promote their interests. Ask yourself who is acting in your best interest and where are your lobbyists? The large investment bankers aren’t trend followers—not even close. They are closer to rogue traders like Nick Lesson except the banks are in on the scam instead of just a lone “trader”.

    Two month ago margins on oil contracts increased significantly, honestly was that in your interests or the big investment banks? Stop hiding behind banks who don’t share your interests.

  14. @Steve, the rogue trader is Nick LEESON (not Nick Lesson) of Barings Bank.

    Didn’t know that speculation/trading is considered a “scam”.

  15. Government control and micromanagement of the economy didn’t work in the Soviet Union. Why does self proclaimed socialist Bernie Sanders believe it will work here?

  16. From a cheesy 80’s movie. Bonus point if you can guess which one.

    Rich Guy: Government control is anathema to the free enterprise system. Any intelligent person knows you cannot interfere with the laws of supply and demand.

    College Kid: Well I see your point sir, that’s the reason I’m not for tariffs.

    Rich Guy: NO! Gotta have tariffs son!! How are you going to compete with the damn foreigners.

    When I saw that it stuck with me and I use the gotta have tariffs son line often.

    It is nonsense, prices go up and someone in gov’t talking about trying to protect the little guy. no talk of the trend followers piling in on the short side to drive prices down.

    Everyone wants to be left alone until they need a bailout and no one wants a refinery in their town. It is all postering.

  17. @ Steve

    You say it yourself: “I don’t see how what happened to the price oil in 2008 and what may be happening again in 2011, is any different from what the Hunt brothers nearly got away with in ‘79 and ‘80”

    Exactly…the Hunt Brothers NEARLY got away with it. They thought they could corner the market, but didn’t realize that markets are dynamic. With silver over $40, the limited supply of silver the brothers thought existed evaporated as silver started coming out of the woodwork in response to high prices. And the high prices also led to higher margin requirements, a logical fallout of price increases (you can’t buy a $1 million home with the same $25,000 down payment you used for a $100,000 home…the payment has to go up).

    Same thing happens with oil…the cure for high/low oil prices is high/low oil prices. High prices = higher production and greater incentives to find alternatives; low prices = disincentive to find more oil and disincentive to find alternative energy sources.

    Oil is the single largest traded commodities contract in the world and daily futures volumes far exceed the capability of any one hedge fund/country/speculator to manipulate on an ongoing basis. If someone thinks they can “fix” the market, more power to them. I’ll take the other side of that trade any day. When they fail, my gains will be astronomical. At some point crystalizing profits on a large contract buy/sell requires dealing with other sophisitcated buyers and sellers who are not going to naively hand over a $billion profit to a potential manipulator who opens his raincoat and says, “Pssst…hey buddy, oil’s going higher…I’ve got $3 billion worth for you to buy!”

    And keep in mind, any time the government interferes, they make things worse. They banned speculation in onions in the 1950’s after blaming price volatility on speculators. The result? Onions have been the most volatile commodity by far over the last 50 years.

    Speculation does not increase volatility…it decreases it. If price goes up 2%, there’s an army of short-term quant speculators with high speed computers who’ll play the volatility to the down side; if prices go down trend followers will jump on board to the down side until the trend ends. Some trend followers are day traders; some play weekly and monthly. Fact is, every category of speculator has collectively $billions to play with and no single entity can control the market for any significant length of time without placing its assets significantly at risk.

    Agsain, as it was with the Hunt Brothers, the market will handle reckless speculation on its own…no government interference needed.

    “Many have found their way to the jailhouse and the poorhouse trying to manipulate markets.” Robert Merton

    The fact is, America’s collective entitlement mentality and resultant excessive debt levels have forced the US government to default on its loans by printing huge amounts of money, which will tank the USD and eventually drive up the price of everything, including oil. But for a thousand years (see Roman history) politicians try to deflect the blame either to short-sellers (currencies) or to speculators. Politicians have no understanding of the markets and should go on vacation whenever they have the impulse to interfere.

  18. Conspiracy theory is not a very good model for how the markets work or the world for that matter. Manipulation of the markets? Maybe in the 1880’s in a local market like chicago. Chaos theory is a better description of markets.The Hunt brothers got sucked in on the frenzy just like the public. One day you got to sell the stuff and then you will be eaten alive trying to get rid of all that silver.

  19. Kyle Lam Says:
    @Steve, the rogue trader is Nick LEESON (not Nick Lesson) of Barings Bank.

    It is what some might call a typo Kyle, but thanks for pointing it out.

    If I can summarize all arguments from everyone: Gov’t intervention is wrong and markets will self correct. Have I summarized the thinking of most here?

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