Gold Daily and Silver Weekly Charts - Welcome to the Jungle

"It is critical that the derivatives markets – both futures and swaps – work for hedgers, the farmers, ranchers, producers and commercial companies in the real economy. Futures and swaps markets allow them to lock in a price and focus on what they do best – servicing customers, producing products and investing in our country’s future. As it’s the hedgers in the real economy – the non-financial side – that provide 94 percent of private sector jobs, it’s all the more important that these markets work for America’s job providers.

The derivatives markets that the CFTC oversees are where hedgers across the country meet financial firms, and others generally called speculators. Over time, the makeup of these markets has shifted dramatically. Financial firms and speculators now make up the vast majority of these markets.

For instance, producers, merchants, processors and other end-users make up approximately 15 percent of the crude oil futures market. Swap dealers, managed money accounts and other financial actors make up the remaining 85 percent. In Chicago Board of Trade wheat contracts, end-users make up nine percent of the long and 29 percent of the short positions, meaning that over 70 percent of this market consists of financial interests.

The CFTC is not a price-setting agency. Our critical mission is to ensure that derivatives markets are transparent, and free of fraud, manipulation and other abuses. Our mission is particularly important considering hedgers, America’s job creators, use these markets to lock in a price and make their investments. Given the dominance of financial actors and speculators in these markets, it’s that much more crucial that the CFTC is well funded so that we can ensure these markets work for hedgers. The need for adequate funding is highlighted by rising gas prices at the pump."

Futures Magazine, CFTC's Gensler Addresses Budget at Senate Hearing, March 21, 2012

Most astute market participants do not need Mr. Gary Gensler to tell them that the financial interests dominate the US commodity markets.   But it is good to hear nonetheless.

Perhaps he can drop a note to his boss, President Obama.  And cc a certain Nobel-Prize-winning economist whose models apparently inform him it is impossible for the financial tail to wag the dog, even when those financiers dominate the market with virtually free money supplied to them by the Federal Reserve Bank.

While it is obviously necessary for Chairman Gensler to have more funds if he is asked to regulate the much larger swaps market, I would be negligent in not mentioning that the figures he quotes about market distortions represent areas that are already under his purview and not some new addition.

The futures industry in America is starting to look like a modern day version of Upton Sinclair's The Jungle. Except in the update they slaughter people's livelihoods and wealth to feed the greed of Wall Street, instead of butchering animals to eat.

The CFTC has been almost notorious in its failure to act on repeated complaints of market manipulation under its existing authority except in the most symbolic of ways, as if handing out tickets for jay-walking, during a period of all out gang war on the public interest.   And the public is getting tired of it. 

SP 500 and NDX Futures Daily Charts - Poltergeist, the Presidency

The political demonstrators of days gone by, when people actually cared about things,  assumed a posture of non-violence.

The leadership class of today has adopted a culture of general non-involvement in almost everything about what they have agreed, or even sworn, to do, except collecting enormous paychecks for not doing it, of course.

When anything goes wrong, none of the leaders knows anything, and no one in charge is involved. Money vaporizes, people disappear, decade long wars continue on, and things just happen by themselves.

A person elected on a reform platform of change immediately brings back the people who created the problem in the first place, and smothers most of the impulse for reform, cutting deals and giving it away to a renegade business class and their representatives. He accepts massive campaign contributions from those he was hired to bring to justice, prosecuting no one. 

And one of his top financial advisors and campaign fund raisers, considered a top candidates for Treasury Secretary, presides over an abuse of customer funds so repugnant and rarely done that even Wall Street recoils in horror.

And yet his opponent, the pre-selected alternative, is from that very same predatory class, with a penchant for forgetting almost everything he has ever said or done in the past whenever he chooses, even denying things that he has said just yesterday, where it is not possible to claim non-involvement due to a preoccupation or some random out of body experience.  His own people liken his record to a slate, which can be wiped clean at will.

And amongst his peers he is the one judged to be 'most reliable.'   Are the American people gone barking mad?

Its like a very bad sequel to the long national nightmare from which people thought they had just escaped.  We are bit players and extras in Poltergeist, the Presidency.  And no matter who is elected, they keep coming back.

MF Global's Edith O'Brien Comments on the Safeguards of Customer Segregated Accounts

This is from a transcript of the CFTC Roundtable Discussion of Individual Customer Collateral Protection on Oct. 22, 2010.

As you may recall, Edith O'Brien is the Assistant Treasurer of MF Global whom Jon Corzine identified in his own Congressional testimony as the key manager over fund transfers of monies, and who has been recently subpoenaed to appear before the House.

In talking down to the 'myopic' particpants, Edith O'Brien makes the point that there are interconnected layers of protections for customer accounts, making the misuse or misappropriation of customer assets highly unlikely.

This transcript is followed by brief excerpts of the Nov 2011 and Fed 2012 testimony of the CFTC to the Congress about MF Global.

Ms. Edith O'Brien: "That's okay. Thank you all for participating today.

I think that a number of individuals from this table don't have the benefit of the extensive experience of the FCM structure, and I've heard two hours of dialogue about seg customer movements between the clearinghouses and the exchanges, and as the conversations continued, it appears that this is an extraordinarily myopic view of the current safeguard structure that operates in America and has effectively worked, to the best of my knowledge, for years.

This safeguard structure in this financial framework is not just about customer seg money moving from FCMs to exchanges, it is based on layers of partners and components across banking institutions who are approved to be exchange settlement banks, exchanges approved participating FCMs. FCMs do credit reviews of clients.  It's layered. Everybody has a role, some of the roles cross over. There's segregation rules, there's segregation calculation. There's now capital rules. There's now capital calculations. There's rule of 15(c)(3) about what can be done of the firm while FCMs are holding them.

So, as we continue the conversation this afternoon, I want everyone to consider the fact that there's a greater framework at hand here, one that has actually worked extremely well. One of the comments that I've heard over the last couple of weeks is how do we prevent a Lehman from happening here? We did. Lehman happened in the U.K.; it did not happen in America.

So, I think that Bob does want to explore the risk components this afternoon, and I want everyone to consider the wider framework that does effectively work at this time, always looking at ways to enhance this to protect customer funds. There's no question about that. But an enhancement is different than the entire change to an infrastructure."

MR. WASSERMAN: I would just make one note in response.

Certainly, Lehman was an example of how well things worked in the future seg world, (in protecting customer funds in futures accounts) and I am very gratified, one might even say personally gratified at how that happened such that futures customers, I think, things worked well with barely a hiccup. But understand that Lehman was an issue outside of the customer account. This was not due to a fellow customer, this was due to a problem essentially on the prop level and at the parent level.

What we're dealing with here is what happens if there is a problem at the customer level, and while that has been happily very rare in the future space, and very happily so, and that's in large part due to the excellent work that's done by a lot of people over here both at the clearinghouse and at the firms, we're bringing in a new environment here on the OTC, where it would be, I feel, a little bit premature to assume just how well things are going to work.

Obviously, we hope that we are developing a system where things will work as
7 well, but there's some different risks that we're going to be confronting, and, so, there's some different issues out there. With that, I think it's important to talk about what the costs are on the risk level because this absolutely changes the risk environment..."

CFTC Roundtable Discussion: Individual Customer Collateral Protection, Oct 22, 2010, transcript.

The November 2011 testimony of the CFTC's Gary Gensler on the taking of customer money at MF Global.



Testimony of CFTC's Gary Gensler on February 29, 2012

Net Asset Value Premiums of Certain Precious Metals Trusts and Funds

The premiums are rather low by historical standards.