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Prez to AG – “Get Krasting”
So the president of the United States has ordered the Attorney General
to go after the speculators who have been drive up the price of oil and
therefore gas. What can I say about this? Does the President think the
American people are stupid? No one is going to fall for this line of
crap.
Up front, let me acknowledge my guilt in this matter. I’m a speculator. I
try my best at it. Some of my best friends are speculators. Many of my
readers are speculators. In one-way or the other we are all speculators.
Those that don’t think they speculate are actually speculators.
My local oil delivery company let’s me play in the big casino. I bought
an option at a fixed price for 5,000 gallons of heating oil. The premium
for the option was 20 cents a gallon. So I paid them $1,000 cash. That
was sort of gambling money. If the cash price were to fall I’d get the
lower price. If it rises, my cost is locked in. Last I looked I was 70
cents in the money. My option cost was 20 cents so I’m “up” 50 cents on
5,000. That’s $2,500 so I’m feeling good on this spec.
It’s not hard to find ways to make money in a rising energy market. I
don’t have the balls to trade Brent futures. I overweight energy names
in the global stock market. It’s worked pretty well.
I have some investments with funds that do trade energy futures (a
“macro” directional fund). They’ve been doing great. I have nothing to
do with their market bets, but since I (and many others) provide the
equity I have to take some responsibility for their actions.
So if the AG is looking for someone who’s hands are “dirty”, well, I guess I’m on the list. If he did look me up, I would tell him that it was the Ben Bernanke that told me to do it. If the Justice Department wants to lean on me they also have to lean on the Fed.
If the AG, Eric Holder, bothered to look it wouldn’t be too hard for him
to see that the blame for all this speculating can be laid at the feet
of the Fed. Mr. Holder will not need a PhD in Economics to make this
conclusion. All he has to do is read the FAQ’s on the home page of the Federal Reserve. From the FAQ (link):
Monetary policy also has an important influence on inflation. When the federal funds rate is reduced, the resulting stronger demand tends to push wages and other costs higher.
Ah! This is easy. When the Federal Funds rate is low,
inflation rises. The price of goods rise! So what is the policy on
Federal Funds? Also easy. It has been ZERO for the past two and a half years! What’s the outlook for ZERO interest rates being maintained? That’s easy too!! The Fed tells us every six weeks or so:
Interest rates will be kept exceptionally low for an extended period of time.
So the Fed is telling us in its FAQ that they want goods to go up in
price. Now all they have to do is push me into action as a speculator.
More from the FAQ:
policy actions can influence expectations about how the economy will perform in the future, including expectations for prices
To me, this is pretty clear, hopefully Holder will agree.
The Fed has succeeded in its effort to change my expectations of the
future of my energy costs. With my expectations being influenced, it is
only natural that I would react. When I pay $1,000 to lock in a price to heat my home it is exactly what Bernanke would want me to do. I’m the best evidence that he has that his policy is “working”.
I think most Americans understand that we import half our oil and that
the value of the dollar is a big factor in the price we pay for crude. A
weak dollar causes the price of oil to rise. So what's the Fed’s
policy on the dollar? Once more from the FAQ:
movements in the exchange value of the dollar represent an important consideration for monetary policy--such movements exert influence on U.S. economic activity and prices
Bingo! The desired consequence of the Fed’s monetary
policy is to devalue the dollar in order to increase economic activity.
But that same action also results in higher imported prices for crude.
The only conclusion that I can come to is that higher oil prices are the
desired consequence of Fed policy. Bernanke has brought
me to the water and strongly suggested I should drink some. It's all
spelled out in the FAQs. Its not hidden in some obscure language. Shame
on me (and the President) if I had ignored such an obvious outcome.
The President and the AG need to determine why folks like me are
speculating rather than just blaming me for high prices. When they look
at the facts they can’t help but see that it is Bernanke that’s behind
all that high priced gas. The speculators like me are just the mechanism
that Bernanke uses to achieve his ends.
»
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Sadly, Bruce, Obama's line of bullshit WILL get accepted by about 35% of the public. That's most of those who devoutly identify themselves as D's. I have family who do. If a prominent "D" politician says that anything is all the fault of someone rich they react as reliably as Pavlov's dogs hearing the dinner bell.
I or anyone else can talk till they're blue in the face. Facts don't matter. A prominent "D" said that it's the fault of the rich (never mind how many rich are also D's). It MUST be true.
There's not much that's more sad than a refusal to think. And a refusal that makes you more vulnerable and turns you into a pathetic dupe to make it worse.
"Does the President think the American people are stupid? No one is going to fall for this line of crap."
Yes he does, they are, and they will fall for the crap. What is there that leads you to believe otherwise?
If we import half our oil then half is domestic.
That's about 10 million barrels of domestic production, a day!
Canada, Mexico and then, of all places, Venezuela are the top three importers.
I think the average cost to produce a barrel of raw oil in the US is something like $10, but whatever, let's say it's $60. So, at $110 that's $50 a barrel times 10 million a day or $500 million a day in pure profit getting pumped into the domestic economy.
That $500 million flows out is a problem, but it's not like Exxon and the rest don't have their finger in almost every pie and it's not like an entirely domestic economy is better than a balanced one.
Oil is used in far more than just gasoline but you never hear that talked about. Plastic is oil. If you can buy oil from Canada and sell it back to them at twice the profit in the form of hockey sticks (kevlar), what's wrong with importing oil?
What is needed is more context to the argument other than the endlessly repetitive talking points we are spoon fed.
It is a little more complicated than that.... US produces about 6 mmbpd, still #3 in the world, we consume about 18 mmbpd. The ~12 mmbpd of imports consists of refined products, crude etc... ~500,000 bpd is exported as refined products...
Marginal cost of a new barrel of production in the GOM is $85-95, assuming you can find a field large enough to justify $500 million upfront.
The Bakken is a bit better, marginal new barrel is about $65, but, going flat out would increase production by ~400,000 bblpd by which time declines from the existing GOM and Prudhoe production will lead to little if any net gain.
If Obama want to seek and punish the speculators responsible for high oil and gas prices, then he only has to look in his own back yard. The idiots he put around him like Bernanke and Geithner are the only two he needs to find. Plain and simple.
These clowns do whatever the banker-gangsters tell them to do. They're like the Muppets, but dumber.
The bear should be called as a witness by the Justice Department.
http://www.xtranormal.com/watch/11855451/drill-and-quit-printing-money?l...
It's seems as though you're always playing a victim.
First you were an avid supporter of TARP, now you're upset because you know as well as I do that well over half the oil business is complete bullshit.
The crux to this disaster of a market is failure rewarded -- banks need to fail, and now it's all about emboldening them for the next bailout, just like the S&L crisis led us to 2008.
No one has brought up RBD (real bills doctrine) which the futures market now partially satisfies. In the distant past the weekly payments to the workers who convert raw materials to finished goods could only be provided by the intermediate creation of "bills" written by an intermediate producer to the next producer up the line. The "bill" eventually matured at full value but prior to maturity had value reduced by its "discount rate" which valued the good at its not yet completed value. The bills traded as money and provided the liquidity necessary for the manufacturing chain. Futures combine this element with necessary hedging elements and are an absolutely necessity lest we return to stone age bartering. Screw around with the futures market and necessities get expensive in a hurry.
And the REAL RATE is MINUS 4.5%, never in history have rates been this far below real inflation, again, arrest Bernanke and publically disembowel him. Then, move to Geithner.
tends to push wages higher - my ass. not in this millenium.
Bruce
Please get the word to tyler to read the email sent to zero hedge about MIT's top secret financial search engine. A grad student just stumbled upon the financial equivalent of the world wide web with his billion price project, and MIT is trying to keep it secret.
The president hasn't said that he is "going after speculators". He said he will have the matter looked into.
Bush did this too, didn't he?
Presidents have been forming commisions to look into "problems" that their constituents want looked into for at least decades
.
There is a knee jerk reaction on ZH to anything that Obama does.
What if the commision finds that QE contributed to rising speculation? Isn't that what you want them to find? You are shooting at the man for looking into causes of a problem.
Is the price of fuel a probem to you? If yes, then why not have the problem looked into?
gh
Good article, Bruce. This topic has led to some interesting discussions around the water cooler lately.
I have no problem with the Bruces of the world speculating but when the TBTF IBs get into the picture then the situation because reminiscent of a banana republic. The big boys can and have affected physical market pricing...
Right. The only commodity they haven't exploited yet is nat gas, and they're working overtime (with idiots like Ratigan's help) on mandating taxpayer's paying for it as a transportation fuel, then BOOM $10.00 ng.
As for the gold strandard, forget it. They can easily control all the physical, which fills 3 Olympic-sized swim pools.
Just who exactly is "they"?
And in case the "they" to whom you are referring are the world's central banks, do you realize that "they" only hold less than 20% of the world's stockpile of gold? And even that figure assumes that the world's central banks hold ALL the gold which they claim to, including the putative 8000+ tons in Fort Knox --- a rather dubious assumption, as GATA and many others have made clear.
Re: the gold standard, the 8000 putative tonnes that exists in Ft. Knox covers 1 year of oil imports for the US.
Just a little perspective on this.
agreed, especially when they are making huge money off of things we need everyday, food and energy. We can live without gold jewlery....we can conserve energy and have, but we can not live without it.
If there was open marker for insulin, which the drug company producing made already really good money, and then some rich investor came along and corner the market, shot up the price of insulin 5 fold, making drug company even richer ( even tho they did not start the manipulation) we would think, hey, while this rich guy might be real clever and might have right to make money, this is a bit much, especially when he is making way more money than even the drug discoverer, the drug manufacturer's windfall.
At some point we have to step back from Ayn Randland and consider the greatest good for all, while acknowledging that some profit, even superprofits from captive people, is reasonable to make sure their are proper incentives in markets to meet consumers/users needs, but then there is point where it becomes counter productive to the common wealth. No bright lines, just reasonable checks and balances to keep markets lively while not strangling macro economy and mass of regular working folks.
RE: first paragraph.
"Does the President think the American people are stupid ?"....YES
"No one is going to fall for this line of crap.".....FALSE
Other than these, excellent points, Bruce.
if the spec charges dont stick i hope they nail you for the graffiti.
frankly, i don't even see what i am doing as speculating...i see as trying my damnedest to protect myself and my family from Bernanke.
Exactly....
Reposted from another thread:
Ain't Peak Oil a hoot?
Everybody running around and pointing fingers, getting their panties in a knot and nobody discusses the underlying trend.
I have *never* seen a chart showing the historical US oil production on any news show. I have never seen anyone show the World or North Sea oil production. No talking head has ever mentioned Net Exports or shown a graph of the meteroic rise of Chinese and Indian demand.
When you sell ignorance, what else can you expect?
Happy Easter to one and all...
oh please, have you looked at chart of user demand for oil and charts of supply. Price is up, not because of users using more, rather because of investors insaitiably buying more.
Oil companies made money selling oil at $20 barrel 10 years ago, are you trying to tell me that oil is in much much shorter supply now at $110 barrel?
There is a peak in oil demand, not supply, and that peak is not coming from users.
Look at the world not just the US....
Net Exports, defined as the amount of oil on the market, *peaked* in 2005 and is down 10% since then. Of the Net Exports, ~40 mmbpd, Chindia went from 7% of that amount to 20% in the past 5 years.
So yes, I am trying to tell you that the supply on the market has decreased dramatically.
lets talk in a couple of years
Spot on Flakmeister, expect the running around and pointing fingers to increase exponentially whilst solutions, or intelligent attempt at solutions, will be MIA...
Bruce,
You have nothing to worry about. What has Mr. Obama actually done? Nothing.
Like the rest of the politicians, he's all talk and no trousers. Chill.
Was never worried. Just ranting....
The greatest virue any blogger can have is not taking him(her)self too seriously. ;>)
There's is excess speculation in the market, but it's not the cause of speculators, only the result of Fed policy. Futures is a zero-sum game unless you're taking delivery of the commodities. There needs to be a certain level of speculation to take the other side of the hedging bets, that's the entire purpose of the market, but speculation only becomes excessive during shortages (which is good, the speculators push up the profitability of supplying the commodity) or when there's some force adding energy (money) into a system that would otherwise be a closed.
Thanks to Fed policy, there are a lot of people on both sides of the trade who are speculating. These guys are zero-sum gambling on price movements, but they do affect the market for commodities. There's a legitimate complaint about this excess speculation, EXCEPT that this type of speculation dies out very quickly because it is a zero-sum game. The losers go broke and quickly exit. That is unless someone is printing up new chits for use in the game, in which case the speculation can grow indefinitely. So even if you accept the hard-line anti-speculation arguments, you're still right back at Federal Reserve policy. Unless you're gung-ho for centralized economic control, in which case by all means, support the whirling dervishes that try to deal with every unintended consequence of their command economy.
Seems to me the USA has a short memory. Under FDR the tax rates were high and bank speculative activity constrained by Gl. St. It didn't stop real economic growth after war to wipe out the mega-debt incurred during WW2. So taxing the rich and regulating financial speculation by strong, honest, government is not a recipe for economic decline. What one needs to avoid economic decline is a game plan to generate real growth through innovation and honest entrepreneurship. NOT the FIRE MEGA PONZI. Now, its too late as there is NO innovative horizon; just more ponzi. There will be economic blood extracted from the plutocratic squids world-wide, as well, alas, from the middle class of developed economies, to wipe out the current macroeconomic imbalances. It'll be payback time to the world in next five years by USA/EU... or WW3!
As for this BK rant on presidential hype : IMHO he is looking at life through the key hole of short term speculation; not from the wide angle of a probable mega-deflation tsunami as inevitable outcome of kicking the can...based on FED's "manyana, manyana" litany, that sees no further than the end of Benocide's nose dipped in hubristic Hopium.
agreed with your first points, and also on Bruce's narrow view of specualation jsut traders buy and selling swings.
But I like real evidence versus speculation on what might happen, and there is real evidence in coutnries that squash speculation in real estate, currency etc. that geneuinely benefit from this as a common wealth.
I like "FIRE MEGA PONZI"....I don't know what Bruce does and I doubt I would count him as part of FIRE ponzi...there has always been some speculaters skimming off movements they predict, but these big money moves, cornering markets of things we must use daily, like fuel and food, are a new thing in last 10-15 years.
I know little about this but from what I have seen, if sane people like Bruce and his friends don't embrace and promote some regulation of the worst abuse in commodities, then helpful, liquity making, in-industry players speculation will likely get ham-handedly wiped out by angry stupid populist moves.
I know there are some industrial uses for silver and gold, but mostly they are not a day to day necessity, so if the Hunt brothers wanted to corner the market, I would think it waswrong in terms that we should keep our markets open, transparent and free from big muscle manipulation, but it really would NOT be an issue for everyday people, just those that get hurt by fraud in that are in market trading/speculation.
But when it comes to food and energy, this is a different story. I think we need to be especially vigilant and sophisticated. The likes of a BK and his friends would be helpful if they didn't reject any of the instinct to protect regular folks from massive, non-fundemental demand market manipulation.
I would have thought the revelations of Enron energy traders would made us a little more sophisticated about this by now. I read an Op-Ed during Cali's energy crisis that said they energy shortage was all a manipulation to force Cali into inking long term energy deals, say 10 years, at high cost. These energy costs were a big part of anger to take our Gray Davis. The op ed arguments were believable but had really no mainstrem proof, but then Enron went bust and the traders fessed up to playing the market like a video game. The op ed guys said the federal regulators were not doing their job, and in hindsight it seems clearly they could have saved Cali a lot of grief and money if they had enforced the laws against this market manipulation properly.
As pessismistic as I am, I am optismistic we can do better than we did with energy manipulators Enron, we just have the smarts and political will. And doing better is not implemting some sledge-hammer to markets, shutting them down or freezing them, but being smart about limiting the worst abuses, ESPECIALLY in commodities of everyday markets.
I have no idea whether Obama's effort is remotely a good way to do this, probably more theater than anything. But is that to say our govt is to do nothing on our behalf?
But high gas prices for no reason don't just hurt average American pocketbooks, it leads directly to higher unemployement in US, big time, for years. Is our govt to do nothing if massive harm is being occurred? Regular working folks, unlike fairly well off traders and hedgies, are hurting and have to rely on a broad economic recovery, regular working folks don't make big money betting things are going up or down, they usually get killed if they try to play individual speculator in their spare time.
Ron Paul can rant all he wants, but the best of times for regular working folks in the US were from 40s-80s, were there were lots of heavy regulations...but there was also broad economic success. From what I have seen 80s-2010s have been the best of times for FIRE folks, specualators and traders, hedgies etc...but not for regular folks. But I guess it is stupid for regular Americans to think their govt would have their interest foremost in their minds, FIRE always wins, even if BK feels picked on.
Well. Yes. You have evidence to the contrary?
What a sheltered life.
Bruce,
This has an interesting point of view on passing the "Debt" we suposedly owe on to the next generation.
What do you think?
**************************
Abe Lincoln’s Legacy: Leviathan’s Bondage of All Americansby Scott Lazarowitz
Recently by Scott Lazarowitz: The Planned Chaos of National Security Socialism: Time to Give the Central Planners a Dishonorable Discharge
With the 150th year of the start of the American "Civil War," it is necessary to point out that, not only was it not a war to "free the slaves," but a war to force seceding states back into a union involuntarily, and a war to strengthen the federal government’s economic control over the people.
For whatever reasons the Southern States had to secede from the "Union," they had an inalienable right to secede. All people have a God-given right to associate or not associate with others, voluntarily. If the people of a particular territory want to separate from a federal union of states, they have every right to separate, just as the Founding Fathers had a right to separate from British rule.
No institution or authority has the right to compel any individual or group into association or contract involuntarily. To believe that the federal government had any moral right to force the people of the seceding states to return to federal association involuntarily is to believe that some people with armed power have a right to claim ownership and control of other people, pure and simple.
The argument that the association of states within the federal union is based on some sort of contract – the U.S. Constitution – is misleading, because the people living in 1861 who had been compelled to abide by the contract did not actually participate in the forming of terms and the signing of the contract. People of later generations are not in any way bound to the terms of any contract agreed to by previous generations. 19th Century individualist and entrepreneur Lysander Spooner explains that further in No Treason: The Constitution of No Authority.
To bind future generations to a contract to which they themselves did not agree or sign is itself a form of enslavement, just as the politicians in Washington currently continue to enslave future generations with debt.
the south seceded because they lost a presidential election, the Democrats, sympathtetic to southern slavery, still controlled congress. The repbulican president's platform was not to abolish slavery, as slavery was allowed in the constitution, rather, it was far less than the what the abolititonists wanted, rather the Republican platform was to not let slavery expand into new terrorities, something not directly expressed in Constitution one way or another, so up for debate by people while still abiding by the constitution. Repbulicans did not like SCOTUS ruling to have to return escaped slaves but in the North people were being convicted for not doing it and Republicans agreed to enforce law as SCOTUS had ruled.
The south seceded because they lost a presidential election, even while retaining controll in Congress, the whole govt was not about to become Repbublican, just its executive branch.. The seceding states didn't wait to see how bad or not so bad a divided govt would be, they seceded months before Lincolns inauguration and in fact had elected their leader and sent him to their head of govt before Lincolns was inaugurated.
When the seceding states seceded, they cleary stated it was because of slavery. When they railed Lincoln, it was in regards to his alleged, not actually stated policies, regarding slavery.
The south seceded because they lost a presidential election and would have to live under the results of a democratic election that yielded a majority congress of Democrats sympathetic totheir cause, expansion of slavery and a President opposed to slavery expansion. So in a free and fair election, per the rules of the constitution, ONE part of the govt was pro-slavery limitations to its current borders, and this was enough offence for seceding states to seced even before that Prez was seated and had done one thing to offend them.
This was a common statement Lincoln made to southerners, at they never denied the truth in it You think slavery is right and ought to be extended; while we think it is wrong and ought to be restricted. That I suppose is the rub. It certainly is the only substantial difference between us.
Don't know about Bruce but I'm in complete agreement with Lazarowitz, and if you haven't already done so, I recommend Goldfield's, "America Aflame" for even more evidence of the "affable", "honest" Abe as a megalomaniacal tyrant bent leaving a lasting legacy before he left this world.
He killed or maimed 1.4 million men and ruined the families of those men. Altogether he sacrificed over 4 million people to his Ego.
Another villain, ignored until now, is the role that the Evangelical Christians played in instigating the War Between the States. Both in the North and the South, with god on their sides.
What we know is that Lincoln's ambition to force those states back into the union was a monstrous error that even a hundred years later, even now in only nominally true.
How much better off would we al be if 20 or so states had successfully assembled in the South and West to counter the effects of institutions that run our country for a select few, like the Federal Reserve? How much better off we would all be with 'another country' on this part of the continent to migrate to?
Lincoln and Davis, while honored by each of their fans, ought to be in same trial court as war criminals.
By this part of the continent, I mean the United States portion.
Canada is cold as a bitch, and too many bugs. And they talk funny. Montreal thinks it's France. Toronto is a financial nerve center with too many people producing absolutely nothing and getting big money to do so. Waste of humanity. Vancouver is proabably the only place I'd considered but after I saw all the rain, it looked like living in Seattle, or London. Not temperate enough for me.
I'd rather the disUnited States had been permitted to break apart when secession actually occurred in the 1860s, the momentum and courage was there. The will to strive to make an alternative domicile available for the like-minded.
And I know that if we had 20 states in the south and west that formed their own one, two or three different countries we would not be facing the disaster that our Central government megalomaniacs created with their vile, power at all costs mentality.
I can visualize four Presidents ---or whatever the form of government the others choose----- having to work things out between themselves to govern this part of the continent far more efficiently and with more responsiblity to the people.
It would be one hell of an improvement over D.C for sure.
Like Canada perhaps? To emigrate to....
Or Mexico?
Who would buy the cotton from the south if there was a disagreement over the labor thingy???
gh
Bruce, Great Job, in documenting one source of the problem.
Please keep in mind the GOAL is to make the Arabs and Muslims the enemy, even if they are NOT; on the dictates, of which Middle Eastern Country, this is NO accident, and who are the biggest speculators, with the most money to speculate.
Do you really think they give a flying fuck, or that even enters the equation,that you saved $ 2,000 on heating-oil this season?
They are after 10 Billion times bigger fish than the speculators (us) they ARE after CONTROL.
It was estimated a year ago that price manipulation is costing us a minimum of $50 Billion a month. You and I as speculators, don't even make a ripple on their screnes. Sorry but true.
So that THEY may control the resources and dictate their price.
Do you think they will not exploit their control, because they are our "partners" and we have protected AND financed them since their origen?
Bruce Baby (I say that affectionately),
I think you know I'm a Democrat, I tend to support President Obama and give him the "benefit of the doubt" when I can. There was a time when most Americans did this, instead of playing "pile on" but I guess Nixon fucked that up. I do agree with you Bruce, that this stuff on oil speculation is largely 95% bogus. But at the same time, I do think "speculation" (as in short term investments just to cash in quickly) are damaging to the overall economy. And our country would be better off, if we had more what I would term "pure investment", as in long-term use of capital, with long-term beneficial ends envisioned before plowing the seeds.
Let the multiple junks and right wing bashing of me begin 1.... 2.... 3.... now
Well I'm not going to junk you but I'm going to disagree. You think specs play a negative role. I think they provide liquidity. Without that there would be constant instability.
Specs are like crows. The make a bunch of noise. They are not very pretty. But they do eat the dead animals on the the side of the road. They perform a valuable service.
Brucy,
I respect your civility on the issue, but I must say au contraire.
The only time a person needs liquidity is when they're holding crap. In which case specs aren't going to be there. Specs and quants have done very little other than steal 1/8 points or pennies from other people putting real thoughts into their investments. When I get fucked on a ten cent spread on the Nasdaq or pink sheets (and there are legit investments there where I have been screwed on the spread so many times I don't want to count) where are the fucking specs and quants, and bloodsuckers like Goldman???? I'll tell you where they are: Fucking the American people at the gas pump on a commodity which in ALL of it's existence never lacked liquidity. And really that's a laughable excuse Bruce. Nobody in their right mind (who isn't rationalizing fucking the guy on the street getting his gas) is going to say these things would be illiquid anyway. The fact is, when there is low volume, quants/Speculators are no where to be seen. Which is why most quants haven't done too well YTD.
You want to explain the volume on flashcrashes to me Bruce??? Where was your liquidity on the flashcrash Bruce???? Mr. Liquidity was on a holiday sipping a margarita with a quant who just fucked me on the trading spread---that's where Mr. Liquidity (aka "Spec") was.
Your comments on the flash crash are well taken. There was "0" liquidity for about ten minutes. The paper wipe out was what, a trillion or so?
I don't think you can slow this down with new "rules". The activity will move to someplace where there are no rules.
Like I said above, crows aren't so nice either. But if you did away with them you would not like the result.
When HFT robots participate in the market(s), what does that do the tradition of "investing?" Think, please.
Excellent post. Count me in as a co-defendant. 25% of my portfolio is USCI, because I believe Ben Bernanke is gong to do exactly what he says he will.
Bruce I think you are confusing the issue with a poor example. In the case of heating oil, you are taking delivery of the good in order to use it. The "speculators" that Soetoro is referring to are those who just trade paper contracts back and forth. What you are doing is investing.
Now I'm guessing that you trade paper contracts for a living - I think that you cherry-picked something from your life you could defend, because it was related to productive enterprise. Can you say the same about how you make your living?
Actual large consumers doing legitimate hedging don't take delivery on oil contract paper.
The contracts generally traded and primarily used for hedging are for Brent & WTI, which make up a tiny fraction of the crude oil trade.
Outside of refiners and chemical producers, NO ONE USES CRUDE OIL. When an airline, ship-line, railroad, logistics firm, agribusiness, or mining concern hedges against crude, they take their fiat profits to offset the increased fiat cost of the specific product that they do actually consume (bunker fuel, jet fuel, diesel, etc.)
I bought a call option on a few years of oil. I bought downside protection while keeping my upside. That is a speculative approach to the problem.
I could have agreed to just buy the oil at a fixed (and lower) price. I paid $1,000 (and a higher strike price) to make a "bet" on the outcome.
I speculated.
One investment strategy that I use:
I buy EVERY new issue that comes to market. I don't care who the company is. If it is an IPO or a secondary. I'm in it. My rule is that they are ALL sold (win/lose/draw) in less than one month.
Pure speculation. It has worked very well for many years.