Futures and Oil prices

[colin]

You sure about that?

 

Self regulation of CDS? Please stop embarrassing yourself.

 

do you know what a ccds is? do you understand what it means wrt counterparty credit?

 

it protects against counterparty (as in the otherside of the cds or any other contract) losses. do you understand how the fed crowds out ccds usage?

 

the actual losses of a counterparty going bust is a function of the net risk netted between the institutions. i could be any amount of notional and still be flat. 2 trill is just a guess. the real embarassing thing about the cds and other derivatives contracts is how poorly managed they are from a back and middle office POV.

 

a ccds model actually provides what the costs will be in the case of a bust (given a specific recovery rate).

 

so yeah, i am sure. and the only thing that is embarrassing is that i have to give you a lesson for you to begin to understand how wrong you are.

 

do you know what a ccds is? just tell me what you think it stands for, and how it CAN protect against counterparty exposure, and why you think it is embarassing to state that it can?

[colin]

Uh...what? Did you just say the Fed doesn't regulate markets, and therefore the market's unregulated because if the Fed didn't regulate the market would self-regulate?

 

no you fool.

 

i said the fed actually crowds out reponsible counterparty risk management. management of banks were correct to not bother hedging their bear counterparty exposure (or under hedging it) as the regulator obviously bailed them out.

[GG]

the actual losses of a counterparty going bust is a function of the net risk netted between the institutions. i could be any amount of notional and still be flat. 2 trill is just a guess. the real embarassing thing about the cds and other derivatives contracts is how poorly managed they are from a back and middle office POV.

 

Keep on proving yourself wrong by your own statements, you're doing a fine job.

 

No one cares about what CDSs are or how they're traded. Moody's concern is exactly what you say. That's why there's a risk and the $2 trillion potential loss is from a primary CDS dealer going bust as the rest of the street will be running for cover trying to unwind the trades and looking for collateral for settlement. Since you're the expert, care to tell me how many times an issue is layered on by CDS contracts? Is there a one one backing of the swap to the underlying bond? If not how will you settle when the bond is locked away in a vault? Care to look at what happened to CDS when Delphi defaulted?

 

Keep talking and proving yourself.

[colin]

Keep on proving yourself wrong by your own statements, you're doing a fine job.

 

No one cares about what CDSs are or how they're traded. Moody's concern is exactly what you say. That's why there's a risk and the $2 trillion potential loss is from a primary CDS dealer going bust as the rest of the street will be running for cover trying to unwind the trades and looking for collateral for settlement. Since you're the expert, care to tell me how many times an issue is layered on by CDS contracts? Is there a one one backing of the swap to the underlying bond? If not how will you settle when the bond is locked away in a vault? Care to look at what happened to CDS when Delphi defaulted?

 

Keep talking and proving yourself.

 

delphi wasnt' a COUNTERPARTY. it was the name on cds contracts being protected against. the CDS' all served their purpose just fine when delphi or anyone else goes under, that's what they are for.

 

don't you understand what the issue with bear going under was? hint: it wasn't cds contracts with bear as the ref entity, it was contracts (and not just cds) where bear was the counterparty.

[GG]

delphi wasnt' a COUNTERPARTY. it was the name on cds contracts being protected against. the CDS' all served their purpose just fine when delphi or anyone else goes under, that's what they are for.

 

don't you understand what the issue with bear going under was? hint: it wasn't cds contracts with bear as the ref entity, it was contracts (and not just cds) where bear was the counterparty.

 

That is the whole point, you imbecile. The risk is with the dealers! The CDS did not serve the point, because there weren't enough bonds to settle all the CDS that were written on Delphi. Some dealers got squeezed out that the Fed had to get involved to force cash settlements, or else there would have been a further domino of short squeezed CDS holders. How did your mythic self-regulated free market work then?

 

Keep talking and proving yourself.

[Dwight Drane]

Instead of calling each other names, why don't some of the people here say what they would do with their money NOW!

 

I went on record after Bear went down on what I would do. I went long big on oil + gold, shorted financials, and went into railroads for the first time in my life. I was laughed at by a few in this discussion, yet they never made it a point to go on the record and say what they would do.

 

Recently I doubled down on gold as it hit the $860s, and sold 70% of my oil stocks last week. I was out of the railroads a few weeks ago figuring they would have to give some back, but they are on a rocketship. More than anything, that tells me the oil "situation" is more than just speculators playing games. Real money is looking for real solutions, and rail makes much more sense than the next bubble which is Green Goods. I got nailed on some Lehman puts because of the Fed coming in with their "non inflationary asset swap" , but still hold Citibank puts@15 for both July and January. I still would keep my assets away from Lehman as they may eventually turn into Bear V.2.0

 

On a personal level, I would start to move on home purchases in areas that are fairly stable (i.e. Buffalo), because the risk of price drop vs the gain of locking in low fixed rates is about to swing in my opinion. If you have good credit, take advantage. Heck, if you have a big freezer, throw some sausage and steak in that puppy as I have a funny feeling food is just as good of an investment as anything at this point. Once the trucks stay in the garage and China calls in loans, all bets are off.

 

Besides the obvious discussion at hand, there are too many geopolitical issues and plain old natural disasters in the mix for the foot of this monster to take up from our collective throat.

 

Let's see what we've got from those I have heard defend for months, but have yet come to the table with an original idea.

[DC Tom]

no you fool.

 

i said the fed actually crowds out reponsible counterparty risk management. management of banks were correct to not bother hedging their bear counterparty exposure (or under hedging it) as the regulator obviously bailed them out.

 

Don't color me the fool, it was your English that was unclear.

 

Of course, now your logic is that the banks were somehow prescient in knowing the Fed would bail out Bear - which was a literally unprecedented move, bailing out an investment bank, and hence didn't hedge their risk based on...their fortune-telling skills? Oh yeah, that makes much more sense.

[DC Tom]

Instead of calling each other names, why don't some of the people here say what they would do with their money NOW!

 

I went on record after Bear went down on what I would do. I went long big on oil + gold, shorted financials, and went into railroads for the first time in my life. I was laughed at by a few in this discussion, yet they never made it a point to go on the record and say what they would do.

 

Recently I doubled down on gold as it hit the $860s, and sold 70% of my oil stocks last week. I was out of the railroads a few weeks ago figuring they would have to give some back, but they are on a rocketship. More than anything, that tells me the oil "situation" is more than just speculators playing games. Real money is looking for real solutions, and rail makes much more sense than the next bubble which is Green Goods. I got nailed on some Lehman puts because of the Fed coming in with their "non inflationary asset swap" , but still hold Citibank puts@15 for both July and January. I still would keep my assets away from Lehman as they may eventually turn into Bear V.2.0

 

On a personal level, I would start to move on home purchases in areas that are fairly stable (i.e. Buffalo), because the risk of price drop vs the gain of locking in low fixed rates is about to swing in my opinion. If you have good credit, take advantage. Heck, if you have a big freezer, throw some sausage and steak in that puppy as I have a funny feeling food is just as good of an investment as anything at this point. Once the trucks stay in the garage and China calls in loans, all bets are off.

 

Besides the obvious discussion at hand, there are too many geopolitical issues and plain old natural disasters in the mix for the foot of this monster to take up from our collective throat.

 

Let's see what we've got from those I have heard defend for months, but have yet come to the table with an original idea.

 

I don't generally discuss my investments...but I went long a couple solar companies and a few foreign micro-caps with energy exposure (to play both rising oil and the falling dollar).

 

Citi puts at $15 are pretty ballsy. Personally, I think that position takes more guts than brains (particularly the Jan position)...but my brother-in-law's an analyst at Citi, and he's not exactly an optimist on his company at the moment...

[colin]

That is the whole point, you imbecile. The risk is with the dealers! The CDS did not serve the point, because there weren't enough bonds to settle all the CDS that were written on Delphi. Some dealers got squeezed out that the Fed had to get involved to force cash settlements, or else there would have been a further domino of short squeezed CDS holders. How did your mythic self-regulated free market work then?

 

Keep talking and proving yourself.

 

k, i might have been mean calling the other guy a fool, but it was because you are a fool (gg, not other guy).

 

2 things

 

1 -- do you understand what the counterparty risk with cds' is? i don't think you do. you have no clue. it has nothing to do with a delivery squeeze. there's a cash settlement market that people can just use when they are short the credit with a cds. the point you cannot understand is that the problem the fed was trying to avoid was not the impact on cds contracts that reference bear, but contracts (and not just cds at all) that had bear as a counter party. THIS HAS NOTHING TO DO WITH CASH OR PHYSICAL SETTLEMENT OF CDS CONTRACTS THAT REFERENCE BEAR, ZERO DO YOU UNDERSTAND THAT YOU IGNORANT BLOW HARD?

 

2 -- the point of the self regulation is that the market WILL NOT self regulate IN ITS OWN SELF INTEREST if they have that crowded out by the fed. while dealers couldn't exactly predict that bear would be bailed out, the effect of the big brother fed is that dealers simply don't push for good controls (internal and external) since they feel they are doing enough as long as they meet the feds obligations. the fed has certainly bailed out people in the past (LTC happened barely 10 years ago), and frankly only now are many big banks looking into good modern (CCDS, do you have any idea what that is GG? of course you, right?) counterparty risk control.

 

do you have the slightest idea what the counterparty risk, where bank A faces bank B on a cds contract referencing bank C for example, is? i don't think you do.

[DC Tom]

k, i might have been mean calling the other guy a fool, but it was because you are a fool (gg, not other guy).

 

2 things

 

1 -- do you understand what the counterparty risk with cds' is? i don't think you do. you have no clue. it has nothing to do with a delivery squeeze. there's a cash settlement market that people can just use when they are short the credit with a cds. the point you cannot understand is that the problem the fed was trying to avoid was not the impact on cds contracts that reference bear, but contracts (and not just cds at all) that had bear as a counter party. THIS HAS NOTHING TO DO WITH CASH OR PHYSICAL SETTLEMENT OF CDS CONTRACTS THAT REFERENCE BEAR, ZERO DO YOU UNDERSTAND THAT YOU IGNORANT BLOW HARD?

 

2 -- the point of the self regulation is that the market WILL NOT self regulate IN ITS OWN SELF INTEREST if they have that crowded out by the fed. while dealers couldn't exactly predict that bear would be bailed out, the effect of the big brother fed is that dealers simply don't push for good controls (internal and external) since they feel they are doing enough as long as they meet the feds obligations. the fed has certainly bailed out people in the past (LTC happened barely 10 years ago), and frankly only now are many big banks looking into good modern (CCDS, do you have any idea what that is GG? of course you, right?) counterparty risk control.

 

do you have the slightest idea what the counterparty risk, where bank A faces bank B on a cds contract referencing bank C for example, is? i don't think you do.

 

Don't apologize to me either until you can string together a coherent sentence, moron. More than half the problem in this discussion is your ambiguity.

[OCinBuffalo]

This is good thread, and I am learning a lot. That is, if everyone knows what they are talking about. The economics part was questionable, though. Uncle Mitlie has proven his theories so many times in so many countries it's not even funny, so I would object to anyone who says different. Besides, anything is better than the falsehoods derived from strict Keynsian thinking. Wage/price fixing is never going to viable, or do we need to look at Cuba again? Still laughing at the "everybody gets a new pot" economic revolution. Well, at least they have something to piss in now.

[Dwight Drane]

I don't generally discuss my investments...but I went long a couple solar companies and a few foreign micro-caps with energy exposure (to play both rising oil and the falling dollar).

 

Citi puts at $15 are pretty ballsy. Personally, I think that position takes more guts than brains (particularly the Jan position)...but my brother-in-law's an analyst at Citi, and he's not exactly an optimist on his company at the moment...

 

Thanks for playing!

 

I think everyone has a right not to discuss their personal investments, but there are certain folk who like to dismiss the views of others yet never put themselves on the line. That's who I am calling out. Instead of having an arguement over textbook definitions, I would like to know what people would do with their cash and assets today. You don't have to name names.

 

I can see why your Brother-in-law is down. They have been trying to stave off their own crisis for the past 9 months with building sales, secondary offerings, wholesale offerings of performing debt in order to raise cash....it looks bad. Options in general can be a crap shoot and are usually bad for the buyer, but it is such a unique time in history that I feel fine with holding more options than I would in a steady market. Citi has admitted they are too big. I think if we could see the off-balance sheet holdings of a few of these places, this discussion wouldn't be as heated.

 

I understand the alternative energy plays because that is where the money is going. I just feel that they are like biotechs a few decades ago where 9 of 10 will go under, and you will get 1 bought out for a big gain. You need a few generations of that to happen before we end up with our Pfizers.

 

I like the fact that people want to discuss this in general, but instead of arguing legistics back and forth, the easiest way to see who is right in the long run is to put some plays out there.

[TPS]

Instead of calling each other names, why don't some of the people here say what they would do with their money NOW!

 

I went on record after Bear went down on what I would do. I went long big on oil + gold, shorted financials, and went into railroads for the first time in my life. I was laughed at by a few in this discussion, yet they never made it a point to go on the record and say what they would do.

 

Recently I doubled down on gold as it hit the $860s, and sold 70% of my oil stocks last week. I was out of the railroads a few weeks ago figuring they would have to give some back, but they are on a rocketship. More than anything, that tells me the oil "situation" is more than just speculators playing games. Real money is looking for real solutions, and rail makes much more sense than the next bubble which is Green Goods. I got nailed on some Lehman puts because of the Fed coming in with their "non inflationary asset swap" , but still hold Citibank puts@15 for both July and January. I still would keep my assets away from Lehman as they may eventually turn into Bear V.2.0

 

On a personal level, I would start to move on home purchases in areas that are fairly stable (i.e. Buffalo), because the risk of price drop vs the gain of locking in low fixed rates is about to swing in my opinion. If you have good credit, take advantage. Heck, if you have a big freezer, throw some sausage and steak in that puppy as I have a funny feeling food is just as good of an investment as anything at this point. Once the trucks stay in the garage and China calls in loans, all bets are off.

 

Besides the obvious discussion at hand, there are too many geopolitical issues and plain old natural disasters in the mix for the foot of this monster to take up from our collective throat.

 

Let's see what we've got from those I have heard defend for months, but have yet come to the table with an original idea.

My portfolio is 55% global natural resources, 15% emerging markets, and 30% cash. Overall up about 11% ytd.

[TPS]

reality can be a little different than how tps and dc tom agree it is.

This from the guy who believes in the helicopter theory of money?

You've also crossed the line !@#$. DC and I never agree!

[DC Tom]

You've also crossed the line !@#$. DC and I never agree!

 

I agree...uh, no, wait, I disagree...no, wait...uh...

 

[erynthered]

http://online.wsj.com/article/SB1212017236...in_commentaries

 

Blame Congress

 

 

Gasoline prices are through the roof and Americans are angry. Someone must be to blame and the obvious villain is "Big Oil" with its alleged ability to gouge consumers and achieve unconscionable, "windfall" profits. Congress is in a vile mood, and has dragged oil industry executives before its committees for show trials, issuing predictable threats of punishment, e.g. a "windfall profits tax."

 

But if there is a villain in all of this, it is Congress itself. That venerable body has made it impossible for U.S. producers of crude oil to tap significant domestic reserves of oil and gas, and it has foreclosed economically viable alternative sources of energy in favor of unfeasible alternatives such as wind and solar. In addition, Congress has slapped substantial taxes on gasoline. Indeed, as oil industry executives reiterated in their appearance before the Senate Judiciary Committee on May 21, 15% of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits.

 

To understand the depth of congressional complicity in the high price of gasoline, one must understand that crude oil prices explain 97% of the variation in the pretax price of gasoline. That price, which has risen to record levels, is set by the intersection of supply and demand. On the one hand, world-wide demand has accelerated mainly due to the rapid growth of China and India.

 

On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.

 

It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.

 

This doesn't even include substantial oil shale resources economically recoverable at oil prices substantially lower than those prevailing today. In an exchange between Sen. Orin Hatch (R., Utah) and John Hofmeister, president of Shell Oil Company during the May 21 Senate Judiciary Committee hearing, the point was made that anywhere from 800 million to two trillion barrels of oil are available from oil shale in Colorado, Utah and Wyoming.

 

If Congress really cared about the economic well-being of American citizens, it would stop fulminating against IOCs and reverse current policies that discourage, indeed prohibit, the production of domestic oil and natural gas. Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.

 

There is an historical precedent for such a step: Ronald Reagan's deregulation of domestic crude oil prices at the beginning of his first term. At the time, thanks to the decision by the Organization of Petroleum Exporting Countries (OPEC) to curtail output, the price of oil was at a level that in real terms is only now being matched. Domestic price controls ensured that the OPEC cartel would face little or no competition in the production of oil.

 

Price controls were exacerbated by other wrongheaded policies stimulated by the two "energy crises" of the 1970s. One of the most egregious was the infamous "windfall profits" tax, designed to punish oil companies for alleged profiteering. But since it applied to even newly discovered oil, its main impact was to discourage the exploration and drilling that would have increased oil supplies.

 

Although the energy problems of the 1970s were traceable to government policies, Reagan's decision to deregulate oil prices was ridiculed by policy makers, especially those who had served in the previous administration. For instance, Frank Zarb, who had been Jimmy Carter's "energy czar," predicted that decontrolling the price of crude oil would lead to gasoline prices of $10 a gallon. Instead, the world price of oil plummeted, helping to fuel the extraordinary economic growth of the 1980s.

 

Reagan's deregulation of crude oil prices created incentives for domestic producers to invest in exploration and to increase production. The threat of increased output by non-OPEC producers destroyed the discipline among OPEC members necessary to restrict production to maintain high prices. Facing the likelihood that an increase in supply would lead to lower future prices, OPEC producers increased output in the hopes of maximizing profits before prices fell. The cascading effect caused oil prices to tumble.

 

As in the 1970s, U.S. energy policies have essentially restricted the exploitation of domestic sources of energy. Curtailed supplies have combined with rapid, world-wide energy demand to increase the price of oil and other sources of energy. This provides leverage to foreign producers and threatens U.S. energy security. Freeing up domestic energy resources will do today what President Reagan's decision to deregulate oil prices in 1981 did then: cause oil prices to fall, thereby enhancing U.S. energy security.

[colin]

Don't apologize to me either until you can string together a coherent sentence, moron. More than half the problem in this discussion is your ambiguity.

 

ok, i take it back, you really are a fool.

 

you and your gay uncle GG are circle jerking with tps over all of this, but you're all just clowns.

 

gg (and you) don't understand the risks that bear was supposed to hold wrt the financial system. it wasn't that they themselves go under damaging their creditors (like when delphi went under) but that they would damage the counterparty system. this is a problem banks should have to fix themselves (and they have lots of ways of doing this, but they are expensive and difficult so they don't want to) and forcing some hard and expensive settlement and collections that SHOULD occur when a big house fails would provide this correction.

 

you and gg are both too ignorant to see this, and too stupid to put 2 and 2 together to understand the implications. tps is just a down the middle sophomoric economist who thinks his particular prof or text is the oracle.

 

i'll leave you to your toe tapping festival.

[GG]

Thanks for playing!

 

I think everyone has a right not to discuss their personal investments, but there are certain folk who like to dismiss the views of others yet never put themselves on the line. That's who I am calling out. Instead of having an arguement over textbook definitions, I would like to know what people would do with their cash and assets today. You don't have to name names.

 

If you're talking about me, try another avenue. I've been defending the system and Fed's actions of the last two months, and it has nothing to do with any particular long or short. If you want to beat your chest about your positions, go ahead, it's your opinion. What I've been takling about is the defending the system that avoided a major collapse and still allows you to go long & short as an ordinary transaction, still being able to clear trades in 3 days and not post cash collateral to trade.

 

The name calling is reserved to morons who picked up a "Trading for Dummies" book and think they're smarter than Paulson & Bernanke.

[GG]

ok, i take it back, you really are a fool.

 

you and your gay uncle GG are circle jerking with tps over all of this, but you're all just clowns.

 

gg (and you) don't understand the risks that bear was supposed to hold wrt the financial system. it wasn't that they themselves go under damaging their creditors (like when delphi went under) but that they would damage the counterparty system. this is a problem banks should have to fix themselves (and they have lots of ways of doing this, but they are expensive and difficult so they don't want to) and forcing some hard and expensive settlement and collections that SHOULD occur when a big house fails would provide this correction.

 

you and gg are both too ignorant to see this, and too stupid to put 2 and 2 together to understand the implications. tps is just a down the middle sophomoric economist who thinks his particular prof or text is the oracle.

 

i'll leave you to your toe tapping festival.

 

 

Which part of "it's the concern about the dealers" that is so difficult for you to understand?

 

Now please tell us again how short selling is less risky than going long. That was wonderfully trollian.

[TPS]

This is good thread, and I am learning a lot. That is, if everyone knows what they are talking about. The economics part was questionable, though. Uncle Mitlie has proven his theories so many times in so many countries it's not even funny, so I would object to anyone who says different. Besides, anything is better than the falsehoods derived from strict Keynsian thinking. Wage/price fixing is never going to viable, or do we need to look at Cuba again? Still laughing at the "everybody gets a new pot" economic revolution. Well, at least they have something to piss in now.

Hmmm...missed this one. My focus is on Friedman's (and monetarism) contention that there is a close relationship between money growth (as defined by M1, which MF used) and inflation. While Volker's Fed tried to use this (MF's "monetary rule") in the early 1980s, they gave up because the relationship was not tight enough to use as a strict policy. No (advanced country's) monetary authority follows Friedman's "monetary rule" any longer because it's just not accurate enough. Most use "inflation targets" and use changes in interest rates to pursue their target.

 

while my buddy colon is correct that the value of money is a function of the price level (inflation), he doesn't seem to understand what money actually is. btw colon, if you define inflation as including increased prices of assets, then maybe we're closer than we think.

 

Here's the key: when gold was money, if you doubled the quantity from a new discovery, sure, you'd have inflation in the classic sense. Today, most of the money supply (M1) is made up of demand deposits and growth of M1 is a function of loans. Just as a new loan can expand the supply, paying off a loan contracts it. Yes Ad, it's much more complex than this, but the concept is that what we think of as "money" is not something permanent once its created, as in the gold example. And, if one expands the definition of "money" to credit, there's a hell of a lot of "money" being destroyed right now.

 

signed, the sophomore