Futures and Oil prices

[Dwight Drane]

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.

 

I'm not beating my chest....you have yet to give an opinion on what people should do with their money or assets. You defend the Fed for "saving the system", yet do you trust the system enough to put your money in? For those of us arguing that the move by the Fed was the beginning of the end of free markets as we know it, I gave specific examples of what I would do with my money in March because I didn't believe everything was ok. So far, it has looked good. You had no problem telling me that I was overreacting back in January when I said some major banks were going to close down. You had no problem making fun of me when Lehman Bros went from 38 to 45. I assume you work for the government in some capacity or are in academia, because you have yet to identify yourself from what I can tell.

 

I don't mind you taking the view that everything is fine and dandy. I mind when you belittle others, yet have failed to offer any confidence in your view through action. Great, the banks didn't shut down for good on St. Patricks Day. That doesn't mean that they won't shut for good on Halloween, or next Easter. It also doesn't mean that a loaf of bread and a gallon of gas won't be $6 by December. To try and say the Fed isn't printing money, they are swapping assets, shows the textbook defense you are taking. Sure, the Fed didn't GIVE me $30 million, they swapped me $30 million in return for my baseball card collection. Hey, those 50 Mark McGwire rookie cards I have are worth $250 each according to the priceguide I have in front of me. The Fed got a deal!

[GG]

I'm not beating my chest....you have yet to give an opinion on what people should do with their money or assets. You defend the Fed for "saving the system", yet do you trust the system enough to put your money in? For those of us arguing that the move by the Fed was the beginning of the end of free markets as we know it, I gave specific examples of what I would do with my money in March because I didn't believe everything was ok. So far, it has looked good. You had no problem telling me that I was overreacting back in January when I said some major banks were going to close down. You had no problem making fun of me when Lehman Bros went from 38 to 45. I assume you work for the government in some capacity or are in academia, because you have yet to identify yourself from what I can tell.

 

I have not given an opinion on what people should do with their money because, a) it's not my job, b) people shouldn't be relying on what to do with their money based on an opinion on an internet forum and c) offering an opinion on what people should do with their money has nothing to do with the state of the financial system which has been saved by aggressive Fed intervention.

 

IIRC, I commented on your overreactions with each passing crisis because it reached comic proportions. But if you go back to the threads, you'll see that my accounts were closer to the truth of the collapse of Bear than the panic induced run on the bank.

 

Again what I do for a living has no bearing on the discussion.

 

I don't mind you taking the view that everything is fine and dandy. I mind when you belittle others, yet have failed to offer any confidence in your view through action. Great, the banks didn't shut down for good on St. Patricks Day. That doesn't mean that they won't shut for good on Halloween, or next Easter. It also doesn't mean that a loaf of bread and a gallon of gas won't be $6 by December. To try and say the Fed isn't printing money, they are swapping assets, shows the textbook defense you are taking. Sure, the Fed didn't GIVE me $30 million, they swapped me $30 million in return for my baseball card collection. Hey, those 50 Mark McGwire rookie cards I have are worth $250 each according to the priceguide I have in front of me. The Fed got a deal!

 

Can we dispense the Utopian free market in securities and banking once and for all. You trade in a highly regulatory environment. It is not a free market and it hasn't been for a long time. I know how difficult it is to convince traders of their invincibility or consequences of their actions, but there's more to a trade than your daily account settlement. That you can trade with countless parties across the world, in countless markets, can hold a position without posting immediate cash collateral, etc. is a result of regulatory purview. You think it's a free market because trading is widespread and you don't have to clear your trades through a governmental agency, yet the capital requirements that broker dealers must pass are highly regulated by some agency, hence no free market.

 

Go ahead, try to set up a shingle of your own and try to trade without some kind of a registration.

 

Which brings us to Bear - you're complaining that somehow Bear was treated differently. In a sense they were. But it was also a regulatory miss that still treats banks and broker dealers differently when the functions they do are very similar. So if you buy into the rationale that the Fed was created to prevent a catastrophic collapse of a financial system by failed banks, and you set up the broker dealers outside that walled garden, you have a problem over the last 20 years when broker dealers got into the "banking" business without the same regulatory framework. There was unfairness on both sides - banks could get access to the discount window but with tougher capital requirements. Broker dealers, no access to discount window, but loosey goosey with capital. No problem until a run on the bank, and the Fed and Treasury had to decide in one day whether Bear's collapse would risk the entire system, which it obviously did. So while you're crying about the death of the free market, I'm telling you it was a regulatory loophole that brought this on.

 

Nice analogies btw, and would probably be more appropriate if you gave a more realistic example, such as somebody providing an independent valuation of the baseball cards, which have been discounted to a previous value and are still paying off interest & principal.

[TPS]

I'm not beating my chest....you have yet to give an opinion on what people should do with their money or assets. You defend the Fed for "saving the system", yet do you trust the system enough to put your money in? For those of us arguing that the move by the Fed was the beginning of the end of free markets as we know it, I gave specific examples of what I would do with my money in March because I didn't believe everything was ok. So far, it has looked good. You had no problem telling me that I was overreacting back in January when I said some major banks were going to close down. You had no problem making fun of me when Lehman Bros went from 38 to 45. I assume you work for the government in some capacity or are in academia, because you have yet to identify yourself from what I can tell.

 

I don't mind you taking the view that everything is fine and dandy. I mind when you belittle others, yet have failed to offer any confidence in your view through action. Great, the banks didn't shut down for good on St. Patricks Day. That doesn't mean that they won't shut for good on Halloween, or next Easter. It also doesn't mean that a loaf of bread and a gallon of gas won't be $6 by December. To try and say the Fed isn't printing money, they are swapping assets, shows the textbook defense you are taking. Sure, the Fed didn't GIVE me $30 million, they swapped me $30 million in return for my baseball card collection. Hey, those 50 Mark McGwire rookie cards I have are worth $250 each according to the priceguide I have in front of me. The Fed got a deal!

Drane,

Here's a nice little piece on expected bank failures I just came across.

150-300 failures?

 

Yeah, gg, what do you do besides post here a lot?

 

Agree about the asset "thingy." They are swapping good for bad assets on the one hand, then, if necessary, they can buy the good asset back in order to provide (more) "liquidity" necessary for the institution to meet its cash flow obligations.

[Dwight Drane]

I'm not complaining about Bear anymore. I gave you the point. The Fed stepped in, it's a new ballgame, life goes on. There are consequences for the new ballgame.

 

Wow, I guess I was comical and overreacting. Everything is so peachy out there. I wonder what people are going to say when the government has to take the airline industry onto it's books? That will be ok though, because then they'll own a bunch of shiny airplanes! What a deal for the Fed!

 

Or how about GM + Ford? Countrywide?

 

I guess I will just have to assume GG works for the government or is involved in teaching. Since I am so wrong about everything else, maybe he is a drummer in a rock band.

 

By the way, I'm not telling people what to do with their money. It's my opinion. This is an opinion board from what I can make of it. If I say Trent Edwards is lightyears ahead of Losman as a QB, I assume someone will ask me why. If I don't agree with the coaches, I can say what I expect to happen because of the decision they made, and we can look back in time and judge if my opinion is worthy to be listened to on a regular basis. Now GG is an intelligent guy, but I feel as if he is giving us program speak. It really doesn't matter....who reads this board, 500 people or so? I just feel as if I'm looking at the Mike Schoop of economic gurus in GG.

[Dwight Drane]

Drane,

Here's a nice little piece on expected bank failures I just came across.

150-300 failures?

 

And this is why I rant. Just because we went over the first 2 hills on the rollercoaster, don't assume those were the biggest or the last. The Fed is telling small and regional banks to sell their underperforming stuff now because they are going to come and whack the values soon. The FDIC has been floating more stuff the past few months than what has ever been seen in this era.

 

I just feel it is faulty to make people think everything is fine and enjoy your way of life. The middle class that overextended themselves are, and will be feeling a big crunch. Once this "imaginary inflation" really kicks in, the lower middle and poor are going to take it too, and already are to some extent. I don't mind if someone has the opinion that we are free and clear, just don't smugly state it as fact. I don't know for certainty what will happen, but at least I am telling you how I am preparing. If someone is nice enough to flash their brights at you coming the other way on the highway, doesn't it make sense to at least slow down for 30 seconds to be sure a cop isn't there waiting for you?

 

Hey, everything may turn out swell. I'm going to rely on my eyes, brain and gut though.

[GG]

And this is why I rant. Just because we went over the first 2 hills on the rollercoaster, don't assume those were the biggest or the last. The Fed is telling small and regional banks to sell their underperforming stuff now because they are going to come and whack the values soon. The FDIC has been floating more stuff the past few months than what has ever been seen in this era.

 

I just feel it is faulty to make people think everything is fine and enjoy your way of life. The middle class that overextended themselves are, and will be feeling a big crunch. Once this "imaginary inflation" really kicks in, the lower middle and poor are going to take it too, and already are to some extent. I don't mind if someone has the opinion that we are free and clear, just don't smugly state it as fact. I don't know for certainty what will happen, but at least I am telling you how I am preparing. If someone is nice enough to flash their brights at you coming the other way on the highway, doesn't it make sense to at least slow down for 30 seconds to be sure a cop isn't there waiting for you?

 

Hey, everything may turn out swell. I'm going to rely on my eyes, brain and gut though.

 

And this is precisely why I called you comical. In your eyes there's a direct link between defending a rescue of a broker dealer which would have immediately torpedoed the global financial system and believing that everything is back to normal. Do your eyes see anything but black & white?

[Dwight Drane]

And this is precisely why I called you comical. In your eyes there's a direct link between defending a rescue of a broker dealer which would have immediately torpedoed the global financial system and believing that everything is back to normal. Do your eyes see anything but black & white?

 

If it was just that, fine. But you dismissed my warnings at the begining of the year. I don't have a problem with your point of view. I'm happy to see educated debate on the forum. We went through the Bear thing, and my opposition to the deal wasn't that it happened, but how they timed it to happen before they opened their window hours later. Bear was probably so bad that it would be embarassing to open the window to them and have them still go under. They managed to save Lehman Bros for the time being.

 

My focus now would be, do you believe the Fed should do the same thing for the airline and auto industries? Now this is where we get to the point that it isn't just counterparty risk involved. It is a point where the holdings themselves can bring down some big names.

 

Sorry if it looks like I'm riding you or anyone else. You are correct, it isn't black and white. I'm just saying, there isn't a textbook or regulation to fluff off what is going on either. All the parts of the entire financial world don't add up in a logical fashion right now, so the debate in my opinion should be focused on where to look for things to smooth out. I guess I am just trying to see what we should label the current situation. I would call it critical but stable. I get the feel you would call it fair or even good. A happy medium would be serious, and at least on March 17 it was DOA, shocked with paddles and adrenaline, and called critical for a few weeks.

[GG]

I suggest reading this week's account of Bear's last days in the WSJ. Highly informative and states that the Fed opened the disc window to Bear one week before the other brokers (it was planned before the collapse). And yes even with added funding the situation was that bad.

 

The reason that I got on you earlier on is there was no reason that BSC, LEH or others should have failed on their own. But you get enough outsiders with lack of confidence pulling their trades and collateral, a broker will go bust. That's what happened - Bear went through $13 billion in cash in its last week paying everyone who exited.

 

Hedge funds learned their lesson in Refco & Amaranth not to mix collateral with prime brokerage, as that was the true undoing of bear, not bad mortgage exposures.

 

Taking stock of that lesson and having access to Fed money if a broker fails, it will due to its own trouble not clients running away.

 

I don't know if you can draw a parallel to other industries because this Admin has been very hands off otherwise. It's standing back allowing full airline consolidation (less carriers are needed). Bigger smack needs to be laid on GE & AIG to stop financing all those airplane leases. But given the overcapacity of airline seats, I don't see a big macro risk to the economy.

 

Same with autos. Cerberus owns Chrysler, GMAC and other PE firms will soon own all parts suppliers. Don't see how GM or Ford would need a governmnet rescue (unless credit markets are still sucky that KKR won't be able to finance a GM buy

 

So in conclusion, the state is serious but stable.

[Dwight Drane]

I suggest reading this week's account of Bear's last days in the WSJ. Highly informative and states that the Fed opened the disc window to Bear one week before the other brokers (it was planned before the collapse). And yes even with added funding the situation was that bad.

 

The reason that I got on you earlier on is there was no reason that BSC, LEH or others should have failed on their own. But you get enough outsiders with lack of confidence pulling their trades and collateral, a broker will go bust. That's what happened - Bear went through $13 billion in cash in its last week paying everyone who exited.

 

Hedge funds learned their lesson in Refco & Amaranth not to mix collateral with prime brokerage, as that was the true undoing of bear, not bad mortgage exposures.

 

Taking stock of that lesson and having access to Fed money if a broker fails, it will due to its own trouble not clients running away.

 

I don't know if you can draw a parallel to other industries because this Admin has been very hands off otherwise. It's standing back allowing full airline consolidation (less carriers are needed). Bigger smack needs to be laid on GE & AIG to stop financing all those airplane leases. But given the overcapacity of airline seats, I don't see a big macro risk to the economy.

 

Same with autos. Cerberus owns Chrysler, GMAC and other PE firms will soon own all parts suppliers. Don't see how GM or Ford would need a governmnet rescue (unless credit markets are still sucky that KKR won't be able to finance a GM buy

 

So in conclusion, the state is serious but stable.

 

You Da Man!

 

Thanks for playing also!

 

I'm not as worried about the autos as the airlines. That may be a sector where Government participation is welcomed. I'll fly in an airforce bomber out of Niagara Falls if it means getting to my destination on time.

[Dwight Drane]

Drane,

Here's a nice little piece on expected bank failures I just came across.

150-300 failures?

 

Speak of the Devil........here's #4 on the year.

 

Going...Going.......

[TPS]

Speak of the Devil........here's #4 on the year.

 

Going...Going.......

Here's a nice little piece on the Fed's role so far and possible future regulation.

 

Kohn

[Dwight Drane]

Here's a nice little piece on the Fed's role so far and possible future regulation.

 

Kohn

 

Now there's a shock! Making the "loans" permanent.

 

I laugh at some of the regulatory things that were issues before this. It makes the SEC look like a cop writing up a ticket for jaywalking as there is a guy shooting people across the street.

[TPS]

Now there's a shock! Making the "loans" permanent.

 

I laugh at some of the regulatory things that were issues before this. It makes the SEC look like a cop writing up a ticket for jaywalking as there is a guy shooting people across the street.

 

If you mean making the "loan facility permanent," yes.

 

Getting back to the original point of the thread...

 

increased margin requirements

 

This may make it tough on the "little guys," but not the institutional speculators.

[Dwight Drane]

If you mean making the "loan facility permanent," yes.

 

Getting back to the original point of the thread...

 

increased margin requirements

 

This may make it tough on the "little guys," but not the institutional speculators.

 

The exchanges did not want to do this, they were forced. The Fed first did this to gold in March, and now Oil. It is all part of their defense of the dollar. They are forcing rule changes in the middle of the game. It does have a real effect at first, but the same game can be played to a certain extent. As long as there is a continued rally in prices, you can keep adding and adding.

 

It is things like this that should make people pause and see the big picture. To say that there isn't interference being run is silly. Maybe the next move will be that the Fed will start paying out dividends to stockholders of companies in sectors they want to support. Nothing would shock me at this point.

[GG]

Now there's a shock! Making the "loans" permanent.

 

I laugh at some of the regulatory things that were issues before this. It makes the SEC look like a cop writing up a ticket for jaywalking as there is a guy shooting people across the street.

 

Only because people still cling to a notion that a major broker dealer is different than a mjor bank. Either regulate all financials the same way, or bring back Glass Steagall and not allow banks to underwrite securities and not allow brokers dealers to engage in anything that resembles banking. Which one sounds like the worse option?

[TPS]

The exchanges did not want to do this, they were forced. The Fed first did this to gold in March, and now Oil. It is all part of their defense of the dollar. They are forcing rule changes in the middle of the game. It does have a real effect at first, but the same game can be played to a certain extent. As long as there is a continued rally in prices, you can keep adding and adding.

 

It is things like this that should make people pause and see the big picture. To say that there isn't interference being run is silly. Maybe the next move will be that the Fed will start paying out dividends to stockholders of companies in sectors they want to support. Nothing would shock me at this point.

 

Update2: it'll be interesting to see what happens this week with the futures prices...

 

Impact of speculators?

[TPS]

Only because people still cling to a notion that a major broker dealer is different than a mjor bank. Either regulate all financials the same way, or bring back Glass Steagall and not allow banks to underwrite securities and not allow brokers dealers to engage in anything that resembles banking. Which one sounds like the worse option?

You don't think there's a difference? Maybe not as much anymore on the asset side, but the source of funds? Should the FDIC insure $X for investment banks now too?

 

I'm sympathetic to your view here, but I still think they are very different animals and need different types of regs. However, I think one common area would be capital requirements (maybe not the same % though).

[GG]

You don't think there's a difference? Maybe not as much anymore on the asset side, but the source of funds? Should the FDIC insure $X for investment banks now too?

 

I'm sympathetic to your view here, but I still think they are very different animals and need different types of regs. However, I think one common area would be capital requirements (maybe not the same % though).

 

The line has been blurring over the last 20 years, and from a product side, it's indistinguishable what you buy from whom (which I thought was the whole point of the Great Overreaction of the Great Depression).

 

Source of funds continues to be the biggest difference, but as we've seen in the last two months, that's gone too. Important to note that the wall separating banks from securities is a US monstrosity, which does not make any commercial sense. If you're talking about differing regulations of individual products (selling stocks vs obtaining a mortgage or insurance) that would still be handled on a product by product basis. But, capital requirements and book accounting will have to converge, and they probably will once Basel II is in full force.

 

Things to come.

[TPS]

The exchanges did not want to do this, they were forced. The Fed first did this to gold in March, and now Oil. It is all part of their defense of the dollar. They are forcing rule changes in the middle of the game. It does have a real effect at first, but the same game can be played to a certain extent. As long as there is a continued rally in prices, you can keep adding and adding.

 

It is things like this that should make people pause and see the big picture. To say that there isn't interference being run is silly. Maybe the next move will be that the Fed will start paying out dividends to stockholders of companies in sectors they want to support. Nothing would shock me at this point.

Something to support the "Drane view."

Phase 2

 

This will test the limits of modern fiscal and monetary policies. In my view, the problem is that the focus has been too concentrated on bailing out the financial sector, when the the "bail out" needs to go to the "source," households/consumers. The housing market has to be stabilized, and there needs to be a more permanent tax cut for those who spend--I'd suggest a significant cut in SS taxes until this is over. And of course some incentives for business investment...

 

While the Fed is selling off assets to fund its bail outs, as long as the government's deficit continues to increase, guess who'll be buying...

[erynthered]

http://www.nypost.com/seven/05292008/busin...l_mi_113005.htm