“NYMEX President Newsome has further opined that ―[t]he reports on the role of speculators on oil prices are grossly exaggerated. If you look at the data on who is actually trading, the level of commercial participants remains 70 to 72 percent. Of course, as Michael Masters recently explained, Dr. Newsome‘s calculation treats investment banks and hedge funds laying off the risk of their off exchange swaps transactions on NYMEX as the same as a heating oil dealer using the WTI contract on NYMEX to hedge his business risk. If those banks and hedge funds were properly classified as speculators, about 70 percent of the trading on NYMEX would be speculative – not commercial. And, if you were to add all of the WTI trading on NYMEX, ICE, and the Dubai exchange, speculation might very well approach 80-90 per cent of the WTI trades executed by U.S. owned exchanges. By any objective assessment, the crude oil market is now overwhelmingly dominated by speculation, most of which is not subject to the age old controls imposed upon speculators in these markets.” (emphasis added)

Soros cautioned against regulation, since it might simply lead investors to move to unregulated commodities markets, such at OTC trading

That’s the polite way of saying: We’d be on our way to a black market for oil. When are people going to get it through their head that free markets find a way. They will always find a way, because they are too powerful a force. People want their stuff, for the price that can negotiate for it.

Although, I do agree an extremely forceful talk with the fund managers is in order. If I hear one more person say: I’m going to invest in Commodity Oil Prices, I think I’m going to scream.

It IS ZERO SUM. IT’S NOT INVESTING. BUT IT IS AN ECONOMIC BENEFIT. The futures markets are for small speculators (Who have been keeping downward pressure on the Oil market during this runup by a net short position as shown by the COT Report), large traders (who need a severe talking to) and the Commercials (Who need the stuff). Any improvements in technology cannot be implemented in a crop before the contract expiration comes due, and the contract comes due. Each position has an opposite position. It’s zero sum, and the free market portion of futures speculation (Which I engage in, and have for 12 years) needs re-enforced to the people that have been slamming their money into those markets. You’re not investing in oil. You’re trading in oil; negotiating the most fair price given the economic fundamentals.

To Daniel Newby: Oil refiners have their margins collapsing as we speak, and significant producers are actually quitely cutting production. Your comments are but dust and tow: look at the world as it is. This commodities spike is spurring neither production, innovation, nor long-term investment. It is a speculative parabola—Soros is totally correct on that—which has no productive function , huge interim distortions, and ends in major financial losses for most players and all end consumers.

Housing 2001-07 was in no way unprecedented. The 1817-19 bubble is a very good comparison, but the best one in American history is the property spec bubble of the 1830s; huge, huge, huge, with a massive bust afterwards. The solution to it?: “Go west, young man” ’cause opportunity in Gotham is an unclaimed corpse in the morgue. Take a look at Thailand in 1996; there’s a pretty property spec bubble for yah. Unprecedented NOT.

And I’m glad to see Dorgan and Cantwell talking tuff. It’s only for the tube at this point, but as things worsen the public will turn to those who want something done that counts. The idea that ‘nothing can have any impact’ is totally bogus. If government and capital fight, who wins? Crack yer history books, fella, vol. 20th century. Governments can’t call all the shots, and shouldn’t really, but if they want capital out of something or into something, they have the oomph and the stick to get it pretty much done. When they have the will, which as we see isn’t just yet. Government intervention is to this point a blunt instrument; it would be much bette if the market was open to suasion and stopped thinking about it’s own lower half and more about its continued health. This is why Senators are bloviating now; the markets won’t listen, naw. But watching capital put itself first in a big way when push has come to shove is an excellent tutorial for the public at large.

Clueless and cowardice in the face of lies and malice.

People are suddenly starving because China’s new middle class is buying up food and feeding it to pigs. This is not speculation, this is a fundamental shift in demand, and an appallingly sudden shift at that. Manipulating the risk/reward curve for commodities would make the starvation problem worse, by damaging the profit to be made by supplying the poorer economies. With investment hamstrung, suppliers would concentrate on the proven profitable Chinese (and Brazilian, and Indian, …) market.

The other side of the sudden shifts in demand is the central banks, who imposed gigantic distortions on the risk/reward curve during the Developing Country Middle Class Boom. Those distortions are now breaking down and the money will start flowing to its natural destinations, so we can expect more sudden, gigantic changes in the flow of money. Those flow changes will leave many poorer countries high and dry. Unfortunately the pent up monetary pressure can not be contained by any possible intervention. The dam is bursting and the water will find its natural level. The only opportunity is to facilitate the necessary investments to build new supplies.

I used to be a hill staffer and I’ll tell you what I was thinking…It was a lousy day for the swaps market. If what those witnesses were talking about was accurate we’ve got one hell of a problem out there. I do not accept the 40-40-40 characterization, but I’m not sure what the committee thinks. You must remember that most Senators and their staffs don’t understand these issues as well as they should. This hearing does not help the debate.

Try telling “commodities is not a zero sum game” to people who recently could support themselves and are now starving. If 60-75% of your budget is food, you can’t take a 50% increase in food prices. Myron Scholes has warned that the increase in food costs in some developing nations will lead to malnutrition, which will hurt the physical and mental development of children. But no, your inflation hedge is more important than other people’s survival.