Michael Covel

Bill Gross is a very smart and accomplished money manager, and perhaps he is dead on here, but I am not sure what steps to exactly take after reading his comments.

How will it play out?

Cuban’s thoughts should make people think.

It seems students are shying away from economics classes. Maybe this is not such a bad thing. Most economists spend their waking hours analyzing data such as “consumer spending” and “durable goods” to make market “predictions”. But how many times do we actually review those predictions to see how well they match what actually happens? So maybe this article means we finally have students saying to themselves, “hey, this stuff doesn’t seem so useful!”

Some heavy hitters weigh in on the next bubble.

What a system. Makes me long for communism…

A nice piece that breaks it down.

A diatribe on the Fed (MP3).

The SEC has gone mad with power. Remember when Americans could point to China and Russia and mock their forms of government controlled “capitalism”? By the time Christopher Cox is done with his remaking of the SEC over in Karl Marx’s vision, America will most likely have a financial system of contradictions that not even the top socialists could have dreamed up. Apparently this is all to “save” us. Here is a tip to all the desk jockies at the SEC in Washington DC: if the market wants to go down no amount of engineering by you will stop it. In fact, these types of actions could very well accelerate a push down.

Agreed.

A recent comment by Ed Seykota on speculation:

In the current rush to fix the US mortgage problem, the silent elephant in the room is government control justifying more government control. Government guarantees bias lenders to take on risky loans — and crowd out lenders that have to take responsibility for their loans. Invariably government gets around to assigning the blame for the imbalances to speculators. Speculators do not create imbalance; they discount it.  Speculators act naturally and opportunistically to exploit situations that government creates by acting naturally and opportunistically.

From a reader today:

While listening to NPR on my way to school today, I heard that Southwest airlines was the only airline that has not had fuel prices effect their bottom line because they decided to use future contracts to hedge their fuel expense! It’s hard to imagine that only the CEO of Southwest airlines knew about oil futures contracts.

I was at an Indymac location in Orange County, California today. To see the fear in people’s eyes that they might lose their deposits was eye-opening. Next bank?

I am jealous of the writing in this post. Great stuff.

From Yahoo Finance today comes this excerpt:

And Wall Street remains uncertain about the economy and specifically the financial sector. This week has brought fresh attention to potential trouble spots in the mortgage market. Fannie Mae and Freddie Mac, the government-chartered mortgage financiers, are still a concern, as are regional banks that could have bad mortgage debt on their books. But, for the moment, investors were pleased by the drop in oil from record levels. “I think the pullback in oil is significant. The market and the market participants clearly had digested what the impact was going to be if oil prices had stayed at that level,” said Dan Genter, president and chief investment officer of RNC Genter in Los Angeles.

Fill air time. Say anything. You don’t have to even make sense (see bold). Will people read it? I guess. I did. Will people act on it or use it? I hope not, but I suspect this type of information does indeed impress people enough to act.

We like to think all we do in America is the best, but doesn’t the notion of bank runs smash the illusion?

An email sent to me tonight by a reader follows. It was signed by the CEOs of all major airlines:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now. For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation. Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs. Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper. The nation needs to pull together to reform the oil markets and solve this growing problem. We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.

I am at a loss for words. Pure manipulation. Gross.

I can’t predict fundamentally when gas prices will drop - no one can. But high prices do change behavior.

From NPR more perspective on the oil blame game.

From Chuck Cain

Hello Michael: I am tired of hearing about the speculators driving up the price of oil. People, mainly politicians and reporters, who dont bother to do their homework are giving this a lot of play. If they did proper research, they would find that, in futures, it is just as easy to speculate on a price drop by being short as it is to speculate on a price increase by being long.  Speculation on the short side would have exactly the opposite effect described in the press and put downward pressure on prices. But the fact is, that speculators are about evenly divided between being long and being short, and thus, cancel each other out. This (PDF) comes from our friendly government regulator who has access to all sorts of position reporting by brokers and exchanges. I especially like the graph at the end. Regards, Chuck Cain

Thanks!

I don’t care whether it is monster optimism on the upside or over the top “the world is going to end (PDF)” pessimism on the downside, none of it helps you to know when to buy and sell precisely.

If the U.S. stock market keeps going down and oil keeps going up doesn’t the Fed have a problem whether they lower or raise rates? We bailed out LTCM summer 1998. Then we lowered rates to nothing after 9/11 to prevent a further stock market drop. Those rate decreases after 9/11 supplied the liquidity to grow the real estate bubble. Not so smart moves over 10 years.

A nice defense from CATO.

Is this not the same explanation we heard during the summer of 1998 when Long Term Capital Management was bailed out?