SP 500 and NDX Futures Daily Charts

These markets are wound a bit tightly, and may break in either direction probably based on some stimulus or trigger event.

They are thirsty for liquidity and real investment and must have one or the other. Real investment is sidelined by fear of corruption and has been chased to the sidelines by rampant speculation by the HFT cowboys.

Bart Chilton of the CFTC Discusses Position Limits - Economists Remain Craven, Compromised, Blind

Bart Chilton discusses position limits and commodity price manipulation with Becky Quick and her assistant.

Silver is mentioned at about 5:35 on the tape.

'Speculators' might be confused with 'investors' if you come from the land of the privileged hedge and vulture funds.

Speculators look for market inefficiencies and exploit them, thereby contributing to price discovery in a healthy market. Investors take longer term positions and tend to be involved in fundamental production and distribution of goods and services.

The problem comes when speculation becomes too large and over-leveraged, and runs out of natural market inefficiencies, and starts to create its own market opportunities by cornering markets, naked short selling, and other forms of price manipulation.

The hot money tends to drive the investment money out of the market and price discovery fails. The distortions caused by malinvestment over periods of time can have significant effects on the real economy.

The Street knows this, and so do the economists and politicians and spokesmodels. They just pretend not to notice because the money is too good to stop, and the painful consequences too remote to care.

Still, 'progressive' economists like Thoma and Krugman continue to believe that speculation does not result in high commodity prices in this case oil. For an example read it here.

I think they are victims of their own lack of understanding of how real markets, versus their theoretical models of markets, work. They say they have never seen any evidence of speculation as a factor in the commodity markets. Have they ever spoken to a regulator like Bart Chilton? I think not. Why burden one's mindset that largely ignored the housing and credit bubble while it was forming under Greenspan? At the time Brad DeLong said that 'Greenspan had NEVER made a policy decision with which I disagreed' and censored my comments about the bubble because 'he knew that I was wrong.'

The abuse of the speculative element and its ability to move any paper markets, particularly in a hot money environment, is almost overwhelming in the available historical examples. I think their romance with paper money makes them blind to its corrosive effects on the real economy.

And it is easy to say that one has seen no proof if all one reads are papers, and do not go out and talk with those working to reform the markets and are closer to the action.  That is why they 'do not understand the passion.'  

More likely is it the inertia of thought that seems to plague the ivory towers. They seem to lag the current trends in finance and the economy by about ten to fifteen years.

I remember being in grad B-school in the late 1980's, and arguing with a few of my profs about 'the Japan miracle' and where it was likely heading. I had been doing business there, learned the language and business culture in particular, and they were tossing around theories and 'facts' that had little or no connection to the reality of what was going on there, with the rampant monetization of real estate and speculation in paper asset bubbles.

They were enthralled by the myths of 'Japan Inc.' that were so popular in their circles of the day, too often promulgated by grant-seeking, honorific econo-whores. By the time the rest of them figure it out the crisis is safely past and we're on to the next. I found an ally in my old macro prof who took me aside and said, "They're young, they'll learn. Money never lies, but you must learn its language, or chase illusions."

And this is why economics is a disgraced profession, and continues to be so.

The 'Raw Deal'

Senate Banking Committee to Hold MF Global Hearing Next Week

"How can people trust the harvest, unless they see it sown?"

Mary Renault

Here is the cast of players for the next Senate Hearing on MF Global as reported by the NY Times.

The problem that this hearing will seek to address is the lack of confidence in the markets and how to restore it.

The appearance of Mr. Freeh is new, and the characterization of it by the Times is interesting.

I doubt anything new will come of this hearing, however. The link in this scandal is Edith O'Brien.

The CFTC is a shadowy reflection of the Congress and the government, which maintains a complaisant tolerance of fraud and corruption as a means of doing business in the markets by powerful finacial interests, despite what they might say or pretend to do when they are pressured by their outraged constituents.

The reform of the markets is not rocket science. But accepting huge sums of money and attempting to please the donors, while merely appearing to reform the markets and enforce the law and doing little of substance, is what is complicated.

NY Times
Senate Banking Committee to Hold MF Global Hearing
By AZAM AHMED and BEN PROTESS
April 17, 2012

A former director of the Federal Bureau of Investigation who has come under fire as the bankruptcy trustee for MF Global will appear next week before a Congressional panel examining the collapse of the brokerage firm.

Louis Freeh, who has the responsibility of returning assets to creditors of the commodities brokerage firm, is expected to testify alongside regulators as well as another trustee responsible for the return of missing customer funds. The two trustees, whose missions in some ways are at odds, have been facing off over the privacy of documents and the distribution of assets.

The hearing, slated for April 24 before the Senate Banking Committee, will be the sixth Congressional inquiry stemming from MF Global’s bankruptcy and the disappearance of customer money. Nearly six months later, farmers, hedge funds and other customers of MF Global are still owed an estimated $1.6 billion.

Unlike previous hearings, which focused on the wrongdoing that may have led to the firm’s collapse, the Senate Banking Committee’s hearing will focus on ways to better protect customer money and improve regulatory oversight.

“As investigators seek to recover MF Global customer funds and hold accountable those responsible for any wrongdoing, Congress needs to focus its attention on preventing future abuses and the other critical public policy issues raised by the collapse of MF Global,” Tim Johnson, a South Dakota Democrat who is chairman of the committee, said in a statement. “This hearing will help us identify ways to restore market confidence for farmers, ranchers and investors through improved regulatory oversight and strengthened protections for customer accounts.”

The hearing will be the first time that the public hears from Mr. Freeh, who has faced pressure over his handling of the bankruptcy process. He initially declined to share certain documents with regulators and his fellow trustee, James W. Giddens. In addition, a furor arose when it emerged that Mr. Freeh had been contemplating awarding bonuses to MF Global executives who remained at the firm, a common practice in bankruptcies.

Mr. Freeh’s fellow panelists are all experienced in MF Global hearings. Mr. Freeh and Mr. Giddens, the trustee responsible for recovering customer money, will be joined by regulators, including Robert Cook, director of trading and markets at the Securities and Exchange Commission; Richard Ketchum, head of the Financial Industry Regulatory Authority, and Terrence A. Duffy, chairman of the CME Group, MF Global’s front-line regulator.

Jill Sommers, a commissioner at the Commodity Futures Trading Commission, will also appear before the committee. The trading commission was MF Global’s federal regulator and is leading the investigation into wrongdoing at MF Global, along with federal prosecutors and the F.B.I....

Read the rest here.