change all country names in your post, and ruminate over its meanings, as thought exercise.
in the meantime, just in in-tray
quote
From: Bowden
American taxpayers deserve to know the quantity and quality of Level 3 assets the FED has taken in collateral for all loans extended via this methodology.
In other words, FASB 157 should apply to the FED as well.
From: Jay
i fear that not only american but electoraes everywhere will certainly find out what you wanted to know regarding quantity and quality of Level 3 assets the FED has taken in collateral, soon enough, and i for one wish for just a bit longer time before revelation day. so, we must be patient, and pray that we do not find out before we are 200% ultra short proshare ready.
From: James
And totally out of US$.
From: Stan
This is primarily directed to Jim, but I'm interested in anything anyone here has to say about the subject. David Roche I believe has already weighed in on this.
I do not know if everyone has seen it yet, but there was another article in the print edition of Barrons this weekend about the current level of commodity prices -- to make a long story short, the discussion centers on the possibility of a serious decline in commodity prices. A cut & paste of a portion of the article that I found online is reproduced below for reference.
Setting the fundamental debate aside, one issue raised by Barrons is that index funds and commodity pools now represent a significant portion of the longs in many of these markets, with the commercials correspondingly short. Examples cited of fund/pool control are 59.1% of the 2007 US soybean crop and 83.6% of the wheat. We've talked here a few times about the lopsideness of the grain markets, but we've never really examined it in detail.
Barrons hypothesizes that if the CFTC were motivated for some reason to remove the exemption on position limits for index funds, those groups would have to liquidate their substantial long side positions in order to comply with the rule change. 50% declines could result.
One can make reasonable inference that the Fed trying to move in on the CFTC's turf here is a clear indication that politically motivated rule changes may be in the offing to suit the Fed's agenda. There is no shortage of people who have labelled current commodity price levels as a speculative bubble not founded on true supply/demand fundamentals, and they are wetting their pants wanting to intervene in the name of combating inflationary pressures -- why would anyone expect them to play fair in the current situation?
Longer term I'm sure everyone agrees that food prices especially are going to go where they belong in the end, but in the near term, poor saps like us on this list could get burned rather badly "Bunker Hunt style" by things like unforeseen rule changes.
So my humble question of you is this: Do you think this rule change stuff is all just a lot of big talk to try to dampen the market, or do you think there is a genuine risk in the current setup? I can't think of anyone on Earth more plugged into what's really going on here
From Barrons --
To get a further idea of the impact of these speculative bets, Barron's asked Briese to measure them against production in the underlying markets. He calculates that in soybeans, the index funds have effectively bought 36.6% of the domestic 2007 crop, and that if you add the commodity pools, the figure climbs to 59.1%. In wheat, the figures are even higher -- 62.3% for the index funds alone, and the figure jumps to a whopping 83.6% if you add the pools. Betting against them as never before are the commercials, who deal in the physical commodity.
The CFTC provides these figures on index trading for only 10 commodities. Why are such major commodities as crude oil, gold, and copper excluded? The agency's rationale, which even certain insiders question, is that it would be hard to get reliable information on these other commodities from the swaps dealers.
WHAT MIGHT FINALLY TRIGGER THE bursting of the commodities bubble?
One possible trigger was cited in a Barron's interview with Carl Weinberg of High Frequency Economics, published last week. Weinberg anticipated a break "some time this year" in industrial commodities, including crude oil, copper and natural gas once there is news of "even the slightest slowdown in the Chinese economy," the country whose insatiable demand, together with that of India, has been a rallying cry of the bullish speculators. When industrial commodities prove vulnerable, speculative money could start fleeing agricultural commodities, also.
Société Générale analyst Albert Edwards goes much further. Based on his view that the "Commodity bubble is nonsense on stilts," Edwards holds the "very strong conviction that before the end of this year, commodity prices...will be unraveling." He believes the triggering events will be the "unfolding U.S. consumer recession" and likelihood of "negative CPI [consumer price index] inflation rates."
A sudden turnaround in the dollar could be another trigger, notes Briese. By making dollar-denominated commodities ever cheaper in terms of other currencies, the collapsing dollar has been a legitimate bullish factor. "But the buck won't go down forever," Briese argues. "The same cycles that coincided with the dollar's major bottom in 1992 are due to make a low later this year. A rebounding dollar would pinch demand for dollar-denominated commodities."
Alternatively, to borrow a quip from the late humorist Art Buchwald -- who once explained that his candidate lost the election owing to "not enough votes" -- the bubble could burst from not enough buying. Brokerage houses have been advising their clients to allocate part of their portfolios to commodities, compared with allocations of zero several years ago. Even a shift of five percentage points would have been more than enough to account for the dollars that have fueled the "nonsense on stilts."
But what if the U.S. economy proves more resilient than currently thought, doesn't fall into recession, and instead starts growing again? The resulting rally in the stock market could send the allocation share back to zero and the bubble could burst, not with a bang, but with a whimper.
The CFTC could also prick the bubble by enforcing its own rules. If the agency were to rescind the exemption on position limits given to the index funds (say, on a phased basis, so that the funds could make an orderly retreat), prices would probably fall back to reflect their true supply-demand fundamentals.
Briese's analysis of commercial hedger positions leads him to believe that commodities in general were fully valued in terms of the fundamentals as of early September 2007. Based on the 24-commodity S&P Goldman Sachs Commodity Index, that would mean about a 30% collapse from present levels. But, he adds, "Given the tendency for prices to overshoot, commodity values could be cut in half before they stabilize."
Maybe it's time to start listening to the smart money.
(end of article transcript)
-- link to Barrons article from the week before for background -- cattlenetwork.com
From: James
Politicians have done many absurd things over time while grandstanding to the public. The French once made short selling a capital offense. America blamed part of the agriculture depression in the 1930s on option traders in Chicago and outlawed options on agriculture [lasted for 40 years or so]. Likewise with gold, etc, etc. Natural gas prices were set at absurd prices in the 1950s so the world had a huge energy problem in the 1970s.
So, yes, they can and will do strange things. Your analysis of a plan to "bring down prices", etc could happen of course as could other absurdities. I have zero idea if they will, but there is a conference in DC about the commodity markets in late April.
The 1936 or so law which set up the curbs are totally ludicrous and out dated, but who knows? The commodity markets are huge, but politicians and even Luddites like the guy who wrote the Barron's article [who has been denying price increases for years] look just at the numbers traded on the exchanges and ignore the vast quantities traded off exchanges. E.g. rice is tiny on the exchanges, but over 3 billion people trade rice 365 days a year so the volume is huge. Historically the volume gravitates to the exchanges eventually, but eventually can take a long time.
In any case, rather than give more stories, let me leave it that it could certainly happen. The Japanese have just done it with adzuki beans. IF it happens, more broadly, I would presume some [mainly agriculture] would take a hit for awhile. Eventually the volume would then move out of the US one way or another. And prices would recover eventually. After all the world does not have enough inventory or productive capacity for rice, etc, etc. Limiting trading positions would have a short term effect just as price controls always do, but in the end, controls always lead to even higher prices. So perhaps this might happen and cause a correction [corrections always happen in markets -- 40-60% corrections are common in all markets as we know], but in the end, it would make the bull market last longer and go even higher.
[BTW: A lot of people have been calling "the top of the commodity bubble" for anywhere from 3 days to 3 years. Some will get the timing right for a correction or two, but I have seen none to date who understand commodity markets. They could not spell commodities 5 years ago and missed the entire 10 year move, but are now "experts", but the reality is they have little understanding of the markets. One last example: 85 million barrels of oil trade 365 days a year at about $100 per barrel. Yet one will see many commentaries which seem to think that all the oil in the world trades on an exchange and use absurd numbers for the size of the energy market.
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