TPS

Here's an article from today's FT, this part in particular: AS this guy says, nothing illegal, it's just that the game has been changed to the benefit of investors over consumers. Since Magox is never wrong, he'll will probably respond with, "I used to trade futures. You don't know what you're talking about." Contango

I may be due for another self-imposted one, assuming I wake up tomorrow...

Good answers.

Just explain what you would do TODAY to fix a problem that won't occur until 2035? And if your solution creates a surplus today, what do you do with it today?

I'll try to make this simple for you. Here's how the system worked: - SS taxes were raised in the 1980s because of this exact situation--a projected future shortfall. - However, the govt used the excess revenues just like general purpose income tax revenues, and put pieces of paper (special purpose bonds)into a "trust fund" that promised to make good on those obligations--no different from any other govt bond. -Fast forward to 2011. Because of the recession, benefits exceed revenues a few years earlier than expected. So the govt has these (previously non-marketable) bonds to meet the deficit on the SS account. How does it make good on them? It has to sell new bonds in order to get cash to "buy back" those obligations, or it can simply sell those special purpose bonds, making them marketable; or the govt can use general purpose revenues (income tax revenues) to meet the obligation. This is how the govt always operates when it needs funds--use current revenues or sell more bonds. Again, the way the system is set up, as long as the govt spends excess SS revenues like they are general purpose funds, it can't transfer funds that it already spent to meet future obligations. Instead, they create a promise to pay in the form of a special purpose bond to meet those future obligations. But you can't make SS payments with bonds, you need cash. How does it get the cash? See above. I guess if I repeate the argument enough you might understand it... The remedy: If what anyone is suggesting is that we need to remedy today's (2011) shortfall by making changes that balance the account today, AND that we need to continue to make changes on the account to keep the pay-as-you-go system in balance annually over time, then I agree. But you can't remedy a future obligation by creating an excess today that gets spent today. Creating a surplus on the account today simply transfers more resources from workers to the government that govt spends today--I guess that's what you guys want to see right? Enough with the reduncancy.

Who said "broken"? I said it's not broke, as in the system will NOT be out of money as the article implied, and what most of the responders seem to think. And, yes, under current projections the system won't be able to meet 100% of obligations, because, as a pay-as-you-go system, there won't be enough workers contributing in 25 years to meet the retirees' obligations. The main point is that UNDER THE CURRENT SYSTEM, raising taxes today to create a bogus future fund to provide future benefits is BS because the government spends SS taxes today like general revenue--you know that DC. Something will have to change, yes. But don't give us the same BS that you (3rd person) sold people on in the 1980s. Either change the system so what I contribute is mine, or make it a true needs-based program, thus trimming benefits.

REad the article again, especially the part that says the government will have to raise taxes, borrow or cut other programs today to repay the special purpose bonds that provide funds to pay current liabilities. Reagan raised taxes on SS (via the Greenspan commission) in the 1980s to do exactly what some of you think needs to be done, it created a "surplus" that is supposed to be used to pay benefits when the benefits exceed revenues, as they currently do. NOW, read what I just wrote about how that "surplus" will be re-paid--history is about to repeat if you believe that raising SS taxes TODAY will provide resources for tomorrow under the current system. Raising taxes today provides resources for the government today, which lowers its deficit today, which puts it in a better financial position for tomorrow. This is a nice little trick to get working class folks to accept higher taxes, and the Heritage Foundation, a right wing group, is certainly going to promote the interest of workers....right... If that's your interpretation, then you're an idiot. While SS needs some "fixing," you don't fix a pay-as-you-go system by saving more today for tomorrow. That's not the same as saying be happy with 80% you dolt.

YOU have the wrong guy. I have been portraying it for what it is--a pay as you go system. Go beat some other dead horse...

That's the system we've allowed. Your bias is that you focus on Soros while ignoring the right. What about Murdoch, Koch brothers, et al?

The point is that SS will not be broke. No where in that article did it say that it's actually a funding short fall, which it will be 25 years into the future. This spin is being pushed in order to get the masses to accept cuts NOW! Which is absolutely idiotic. But the dopes will swallow it. Medicare is a serious problem which needs to be resolved. As far as getting one's money out of SS, that depends on how long you live! If you live long enough, you will take out more than you ever put in. The total you put into it is irrelevant to the total you take out (other than qualifying you for a certain monthly payment)! So your statement about getting F'ed out of 20% of your money just shows your ignorance, especially when you try to tie it to one's politics. Yeah, it's my liberal philosophy.... SS is a pay-as-you-go system. Our SS taxes support current retirees, not our future benefits, which is why it's idiotic to have someone tell you/us that we need to raise taxes (or cut benefits) NOW in order to support future retirees.

That's hilarious coming from Fox news! Pot meet kettle... So I suppose the headline topic was meant to grab attention so we'd read the propaganda?

The dichotomy between financial traders and commercial: FTimes

Holy crap! It's gonna be broke in 25 years?!? Well, not quite broke, it just won't be able to meet 100% of its obligations based on today's projections. You'll still get 80% of your benefits if no changes are made.

I agree they have a direct impact via the new issues. Everytime the APs want more units to sell, they buy an allotment from USO, which means USO has to buy more contracts. That has been my contention day one. The disagreement I have is that the secondary trades of existing shares on NYSE Arca does not influence futures prices. It's the same as a share of stock. An increase in the value of a company's stock does not change the value of its assets. New issues of stock used to finance more assets does. Read the prospectus shmo.

It's obvious someone doesn't know how the USO ETF works... The managers of the fund sell allotments of 100,000 units (the initial offering prices was $50) to big banks and brokerage houses (known as authorized purchasers--APs), who in turn sell these shares to other investors, including retail investors. The managers of USO use the funds raised from the APs to buy futures contracts on oil, but will also buy other oil-related investments--swaps and options. The ETF shares sold by the APs to retail investors trade on NYSE Arca like any secondary market. It is no different than selling a share of stock--I'm selling to another invetor, hence NO impact on futures contracts. The value of the ETF will obviously be related to the NAV of the underlying futures contracts. It may trade above NAV, it may trade below. All of that buying and selling of existing ETF shares has NO impact on the underlying futures! It's the other way around--the changing value of futures prices changes NAV of USO and therefore the ETF price. Now since you claim to have traded futures, I assume you understand that the USO fund only has to put up the margin on the futures investments, not the actual value. This means the majority of the funds raised by USO are invested in treasuries. Only about 10% of USO assets goes to meeting margin, the rest is in treasuries. This is why a change in margin has no impact on futures contracts that make up ETF investments. Read the prospectus. That said, USO will/does sell more allotments when the APs want more shares to sell to retail investors, and USO then buys more futures contracts. It is also possible for an AP to redeem an allotment of 100,000 units, which means the fund will reduce the number of contracts it buys. This happens about as regularly as corporations issue or buy back stock. Otherwise, the existing 45.3 million units outstanding trade just like any other stock. You are wrong.

Going in and out of ETFs has no impact on the futures contracts that make up its value. REtail investors buy and sell the ETF which is independent of the underlying contracts. Margin has no impact on the number of futures contracts in the USO ETF. In fact, the majority of funds that the ETF raises via its offering is invested in money market instruments and other relatively short treasuries because of margin. The USO fund sells shares based on the total value of the contracts, yet the fund only puts up 6-8% of the capital to meet the margin requirement. Do you really think the movements in commodities, especially oil, in the past week (today!!) are based on fundamentals? I hope everyone continues to use alternatives to driving and filling gas tanks so these mo-fos lose their shirts. Demand is falling; suppliers are cutting production. The Saudis initially increased supply because of Libya, then cut back because no one was buying. Investment flows are distorting futures markets and therefore spot prices. The futures markets now function like casinos, not markets for hedgers. All it would take is for the Fed to raise rates by 25 bps and oil would drop another $15, but they have masters too...

I don't think it's a fair comparison to say that a margin change in oil should have the same effect as it had in silver. I would agree that $100 is closer to "a fair price" than $112.... Once again, a change in margin won't shake out futures contracts tied to ETfs.

Some more facts... 1. Futures markets are more volatile now. Last week's drop exceeded the value on margin. The exchange is looking for a little more protection. 2. With a fixed margin amount, as the value of contracts increases because price is increasing, the margin as a % of value decreases--creating more leverage for all traders. So, when margin was $6,750/contract and oil was $80/ barrel, margin was 8.44% of the total value of a wti contract (1,000 barrels per). With oil at $100, the old margin as a % of value fell to 6.75%. The new margin value raises the % cost back to 8.44% with a $100 price. 3. Don't confuse speculators with investors. My argument is that new instruments (ETFs) have increased the demand for futures contracts that make up the value of the ETF. The USO ETF isn't going to leave the futures market--margin has almost no impact on the demand for ETF futures-related investments. These are passively managed funds. The managers are required to buy a set number of contracts. Margin has a slight impact on the ETF's return. ETFs and swaps are where the demand for futures contracts is being driven, not your so-called traditional speculators who directly participate in the futures markets. 4. The majority of the players in oil now are big banks, pension funds, hedge funds, and I think they have sufficient capital for the additional margin. The days of the individual futures trader speculating and/or making market postions is over. The market has changed since you traded, in case you didn't notice.

Just spin it... got to love this one: if the banks are causing high commodity prices, then they need to do a better marketing job to the public so as not to get blame....

While there are a lot of disagreements here at PPP, I think there was broad agreement that QE2 wasn't going to impact the economy much. Unless there was some other unstated goal they were trying to achieve, it was a bad idea.

This is a good piece trying to discern what happened last week. oil prices

I think you're right on JtSP. On O, recall also, the last few games there were no-names at WR. They lost everyone but Johnson. Hopefully Easely is in the mix this year too--I expect big things from him. On D, the Dareus pick alone creates a significant improvement. The Pats said they focused on taking out KWilliams; now they can't. In addition, Dareus will free up the OLB so he'll be 1-on-1. On the negative side, there will be growing pains with a very young D.

Doc, There is a negative relationship between the $ and oil now (it used to be positive--pre 2000/1). I can imagine program traders have investment programs that move when the dollar moves. If that's the case, are they also programmed to make the reverse move? While the usual causality runs from $ to oil, maybe this time the steep drop in oil (and other commodities) drove the $ up? I looked at that relation yesterday too. Commodities and oil were trending down all week, the $ wobbled all week (without trend) until yesterday's crash.

It's a combination of this and what Rob said. Raise the price because I can (lots of news about higher oil prices), but also because I'm going to need more cash to replace inventory, so I can pay for it without having to borrow. I lower prices only after I sell off the expensive inventory, and I make more money because my replacement costs are lower. Prices tend to be flexible up but sticky down.

According to this link: In my view, the "commodity bubble" (not just oil) got started last fall, further fueled by QE2 in November. For Oil, it was pumped up by MENA activity to get the retail dopes in for the final push... It was a sector bubble, not just oil, hence the across-the-board drop/pop. Bloomberg