The Motive and Under-Currents of Reality
by Walter Burien - 06/06/08 -

Crude oil yesterday 06/05/08 after a two week decline hit a low on the July futures contract of 121.68, and then today 06/06/08 a straight push up to 139.12 a "$17.44" increase from low to high in one day. Somethings up? [The largest increase in a 24hr period for Crude Oil that I have ever seen in thirty years trading the Commodity Futures Market]

For this type of 24hr bounce, it is not normal to say the least. The big boys may know something everyone else does not to make this type of commitment for a one day move. Iran factor this weekend?

The following copied article on the general driving forces behind prices is a good one. I do note that it does not mention who the large speculators are that are driving the market, so let me fill in that blank: It is our own local and federal government investment portfolios. As a few trillion dollars are squeezed out of our pockets, they are transfered right into the account balances of those government investment portfolios. And you thought government inflated their pockets with tax revenue, well that is their second source of income now. Return on investments is now #1. Slight tad bit of conflict of interest here me thinks at the publics expense and intentionally played void of comprehension per the under currents of reality driving the market place for profit. (Government's not yours) Who owns it all by investment? Our own play-you-every time government. You're no dummy, you should know that.

You have heard that expression: "Power corrupts and absolute power corrupts absolutely." Well, government investments have created a composite monopoly of no equal. All others are just steam rolled when it comes to being contrary to governments bottom line driving ever forward in the black... The definition of Greed = "Governments unrestrained ability to make a profit and expand."

Yours truly,

Walter J. Burien, Jr.
P. O. Box 2112
Saint Johns, AZ 85936

Tel: 928-445-3532


Pension funds pay a salary and benefits at retirement. Any local government can be restructured to meet their annual budget needs "Without" taxes. TRF (Tax Retirement Funds) paying for every City, County, State’s annual budgetary needs! This now makes the people the true owners with government being the true service provider. Government has already shown that a TRF works by example through the management of their own combined multi-trillion dollar pension funds! CAFR1 says: Make it law and make it so!
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Friday, June 6, 2008

Forget IF there's speculation in commodities.
Ask "WHY?"

by Mike Larson

Dear Subscriber,

Mike Larson

Congress is up in arms. And the Commodity Futures Trading Commission (CFTC) is on the warpath. Their target: Speculators in the natural resources market.

The CFTC said this week that it's investigating a dramatic rise in cotton prices from earlier this year. It also plans to tighten some rules that apply to investors in the broader agricultural futures markets. Those steps come just a few days after the regulatory body said it would investigate oil trading activity to see if prices are being manipulated.

Meanwhile, the Senate Commerce, Science, and Transportation Committee just held a hearing on commodities speculation. At the gathering, legendary hedge fund manager George Soros said:

"There is a strong prima facie case against institutional investors pursuing a commodity index-buying strategy ... It is intellectually dishonest, potentially destabilizing and distinctly harmful in its economic consequences."

A gentleman by the name of Gerry Ramm, who runs an oil company in Washington, was even more blunt. He said:

"Excessive speculation on energy-trading facilities is the fuel that is driving this runaway train in crude oil prices"

George Soros
George Soros, the enormously successful financier, philanthropist and bestselling author, testified before the U.S. Congress on Tuesday.

My take? I think there have been serious fundamental forces driving the price of oil and other commodities higher in the past few years. They include strong overseas demand, booming growth in China, India, and all over Asia, a lack of investment in mining and drilling when commodity prices were low, and so on.

But you've got natural resource experts like Sean Brodrick and Larry Edelson who can tell you all about those forces. My focus today is on how fiscal and monetary policymakers have made a bad problem — at least, from the perspective of commodity CONSUMERS — much worse.

The irony here is what precipitated all this ...

The Role of the Fed and the Dollar
In the Commodity Boom

Officially, we've had a strong dollar policy in the U.S. for several years. Unofficially, we've had anything but.

Treasury Secretaries, including the current one Henry Paulson, have occasionally released mealy-mouthed statements designed to give the buck a boost. But none of them had any lasting impact. The dollar has persistently declined since 2001 amid a dollar policy of benign neglect.

Fields of Gold:  ANow stop for a minute and put yourself in the shoes of an executive at a foreign firm that produces oil ... or copper ... or virtually any other commodity. Your commodities are priced in dollars. You're getting paid in dollars. Yet month after month, the value of those dollars is declining.

What are you going to do? You're going to raise your prices! You need more dollars from each sale of a barrel of oil or metric tonne of copper to compensate for the loss of the purchasing power of those dollars.

Fields of Gold: A bushel of spring wheat, which has historically traded between $3 and $7, recently spiked as high as $24
Large speculators and big money investors aren't idiots. They figured out long ago that the U.S. administration couldn't care less about the dollar. And they knew their dollars were losing purchasing power, too. So what'd they do? They started plowing money into commodities themselves. That money flow — that "asset allocation" into commodities — continues to this day.

So yes, I do believe that investors have played a role in driving prices higher. But it's the government's own fault!

The same policymakers who are whining about investors buying resources are the ones who haven't been willing to step up and take a stand to defend the dollar.

Meanwhile, on the interest rate front, the Federal Reserve embarked on a massive cutting campaign after the dot-com bust. It slashed the funds rate all the way to 1% ... and left it there for a long time. Then it raised rates so slowly that the "real" fed funds rate was negative for several quarters. [Editor's Note: See Mike's May 2 Money and Markets for more details.]

Last year, as the credit crisis started hammering the markets, the Fed obliged Wall Street once again. It aggressively slashed interest rates, driving them well below the rate of inflation.

What impact did this fresh bout of negative real rates have on commodities? Take a look at this chart showing the funds rate (black line) and the price of crude oil futures (blue line). You tell me if maybe, just maybe, this flood of "cheaper than free" money from the Fed has had a role to play in the surge in commodity prices.

Fed Funds vs Oil Chart

The way I see it, the Fed's moves were like throwing red meat into a cage full of hungry lions. Or maybe pouring gasoline on an already-raging fire. You can pick your own favorite metaphor. But I think you catch my drift.

The Fed keeps acting surprised about the run up in commodities prices. It seems "shocked, SHOCKED!" that they have gone up. Has anyone at the Fed tried looking in the mirror recently? That's where at least part of the fault lies.

If They Want to Get Prices Under Control,
They Need to Hike Interest Rates!

In sum, most of Wall Street and Washington are asking: "Are speculators driving commodity prices higher?" I think that's the wrong question. What they SHOULD be asking is: "WHY are speculators and investors pouring into the natural resources market?"

The answer is simple: Because they have both the motive (they're trying to protect themselves against the declining purchasing power of their dollars) and the means (better-than-free money, courtesy of Ben Bernanke's reckless monetary policy) to do so.

So listen up Washington: You want to stop commodity prices from going up? You want to give consumers a break at the gas pump and the grocery store? You want to punish the speculators and end this madness?

Then quit whining about those meanies in the commodities pits. Quit dinking around with margin and reporting requirements. Hike interest rates. Now! Push them a percentage point or two above the current rate of inflation (or barring that, above the expected future rate of inflation). That'll stem the flow of easy money into natural resource markets, drive the dollar higher, and cause prices to collapse.

Will that harm the economy? Will it cause some pain? Absolutely. But nobody said running the Fed was an easy job. Sometimes you have to take the politically painful path in the short term to restore long-term credibility and to keep inflation under control.

Until next time,


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