Airlines To Passengers: Blame Oil Speculators (try blaming the right people, Congress!)

CBS ^ | 7/10/2008 | Politico

[tobyhill]

Airlines are trying to divert Their frequent flyers' fury to a new villain: oil speculators.

On Wednesday, AirTran sent out an e-mail encouraging their passengers to urge Congress to crack down on commodities investors – labeled by opponents as “speculators.”

“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,” says the email, which went out to members of AirTran’s A+ Rewards Program. “Normal market forces are being dangerously amplified by poorly regulated market speculation.”

[SAJ]

In order:

Probably (esp if motor gasoline price keeps rising).
Yes (the old ''too big to fail'' argument).
No (they will want to, but pocketbook politics always prevails...and the consumer mostly understands that he pays 'windfall profit' taxes.

Oh, I had your point in the prior post. Just pointing out that unpredictability in, say, the crude mkt is almost guaranteed to differ considerably from unpredictability in some other named mkt.

[SAJ]

I was in the mkts even back then (official olde pharte, here), and I wouldn't for a single second call Bunker Hunt's adventure in the silver mkt 'speculation'.

It was a deliberate and systematic attempt to manipulate and control the price of silver via an old-fashioned 'corner'.

[count-your-change]

The one important question I think I could ask about commodity futures margin requirements is: Do they perform their intended purpose? If they do, why change them? If there are abuses go after what produces them not something that does what it was intended.
Why shoot groundhogs when it’s the deer eating my garden?
Cause they’re easier to hit I guess.

[count-your-change]

Yeah, If you remember ‘ole’ Bunky you (we) date yourself.
Besides having more money than brains Bunky was taking so much actual delivery (if I recall) and holding future contracts that he couldn’t raise cash fast enough to meet margin calls and ended up with expensive siver in a falling market. What did he lose? Was it in the hundreds of millions? Anyway it was about half the national debt and Bunky went from filthy rich to just slightly soiled rich.
Maybe he shouldn't have taken all that silver delivery.

[Toddsterpatriot]

Why do so many FReepers defend a**hole Wall St. speculators?

Why are so many Freepers ignorant of markets and economics?

If you want to buy MSFT stock in your Schwab account, you will need 25% of that purchase price in CASH in your account to do so.

Initial margin is 50%.

[SAJ]

Hunt probably had enough assets to control the silver mkt. He forgot just one thing:

People don't like being pushed around, and big players REALLY don't like being pushed around. Finally, enough of them got together and persuaded COMEX to open trading for liquidation ONLY in silver.

This was, of course, the kiss of death, because now the mkt mechanism (not to mention a bit of panic) started working directly against him. 3 weeks later, silver (basis SI80H) was $12 lower, and Bunky was toast. He lost approx $600 million, according to the reports I had at the time.

[SAJ]

With the introduction of the SPAN margining procedure in the late 1980s, futures margining has become really quite efficient. I'd say the process is very well suited to the task and does it well.

The abuses in present-day futures mkts have absolutely nothing to do with margining, zip, zero, zilch. The abuses are right now caused by people using existing law (and existing regulations) to game mkts.

The 'groundhogs' at whom the Regress and CFTC need to aim are the investment banks, who are deliberately abusing the current system. Unfortunately, in the case of the Regress particularly, it's not considered sporting to shoot at those who own you.

More's the pity.

[count-your-change]

Just shows a person need not be smart to be rich. It was Bunky and/or Lamar that got involved in soybean futures too.
It’s a wonder they held on to so much money for so long!

[montag813]

Initial margin is 50%.

Nope. 25% for accounts above $25,000. Who's "ignorant"?

[montag813]

The Regress aren't going to do a damned thing about it in an election year, and especially not when GS, MS, Merrill and the boys have bought so many Regresscritters. In theory, btw, all it takes is one ruling, just one, from CFTC, that reclassifies investment-banks-acting-as-agents for clients from ''commercials (aka hedgers)'', as they are now classified, to ''reporting traders (aka 'large specs')''. Crude would drop $30/bbl in a week or two, and $50-60 over 6 months' time.

Sounds like we agree, so why the argument?

Btw, thanks for the offer of education, but I am also a futures trader.

[montag813]

So what if montag813 thinks we need more government and less capitalism?

Nope. I just don't think rules created for folks who hedge a commodity (farmers, airlines, etc.) should be bent for those who bribe Congress.

[Toddsterpatriot]

Nope. 25% for accounts above $25,000.

No, initial margin on a stock purchase is 50%. Maintenance margin is 25%.

According to Regulation T, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.

http://www.investopedia.com/terms/r/regulationt.asp

Who's "ignorant"?

Of Reg T? That would be you.

[SAJ]

As old H.L. said about Lamar, after he'd bought the AFL Dallas Texans, moved them to KC, renamed them the Chiefs, and was losing each year upwards of $1-2 million a year:

''Well, I guess he'll be broke in a hundred years or so.''

[SAJ]

You have, along with your odd attitude about specs, made multiple factually erroneous statements. Further, it is quite clear that you believe the futures mkts should be regulated by, among other things, the Fed's Reg T.

This latter notion, aside from being pure idiocy, indicates VERY clearly that you've exactly no concept of what ''margin'' in futures mkts is all about. Multiple practical examples on request.

If you trade in futures, I should strongly recommend that you learn about these points. However -- hey -- it's your capital that you put at risk by remaining ignorant. Not my problem.

Good luck to you. You'll need it.

FReegards!

[Attention Surplus Disorder]

That [Finally, enough of them got together and persuaded COMEX to open trading for liquidation ONLY in silver.] is my understanding as well.

Can you imagine? Market is open, but all you can do is to SELL. Uhhh, OK, I guess I’ll....SELL!!!

I still find it hard to imagine that occurring. On one hand, Hunt had the right, as far as I am concerned, to acquire all the silver he could buy and pay for. And (correct me if I’m wrong) I take it he remained within the position limits at the time and over the period he was voraciously acquiring Ag. Otherwise, existing (at the time) law would have whacked him.

I guess it was poetic justice that the system he tried to exploit boomeranged on him.

[expat_panama]

"...your odd attitude about specs..."

Wait a second SAJ, here's a guy whose taken it upon himself to put himself above the free market, decide how is deserving and who is unclean, and you call his attitude "odd"?   Now that's what I call 'remarkable restraint'.   Whenever clowns like these try and nationalize a chunk of the economy this big, they can only end up making a mess for everyone.

 

It's time for all of us to keep in mind---

[SAJ]

Violating position limits on COMEX was never one of Bunky's problems. The problem was -- and it was huge -- that he arranged for (presumably) friends of his overseas to trade limit-sized or near-limit positions on COMEX, too, not to mention his/their huge positions at LME.

This is and always has been a major no-no. The regs are supposed to prevent a group of people from colluding to move a mkt's price, and for the most part the regs work very well. Hunt just tried to put a new twist on collusion.

The story I have, second-hand to be sure and I cannot guarantee its accuracy, is that COMEX, with or without CFTC ''assistance'', decided that it would probably be more trouble than worth to bust Hunt et al. for collusion, and figured that just getting him out of the mkt was probably as good as they could do.

Keep in mind that, by law, one of an exchange's duties is to facilitate and maintain orderly mkts. I don't how well you remember late 1979, but ''orderly'' was not a word that could have been applied to the silver mkt at that time. It was a mess; you couldn't turn around without some pundit offering assorted ''wisdom'' about silver, and the panic-mongers were having orgasms almost daily.

Hunt indeed had the right to trade all the COMEX silver he wanted, subject to position limits. He did not have the right to attempt to corner the mkt, largely via straw accounts...and he got nailed when he did try.

COMEX and CFTC, in my view, showed rather remarkable restraint through the whole affair.

[SAJ]

Oh, I guess I've just been around too long to get upset about would-be little tin gods when it comes to the marketplace. The market always -- and I do mean **always** -- sorts them out, usually sooner than later, unless goobermint mixes in.

The dangerous situation here, potentially, is that the egomaniacs, narcissists, crooks, and loons (not mutually exclusive groups, btw) who infest the Regress will ''do something'' so far over and above their usual level of stupidity and arrogance that one or another market will be wrecked for good and all.

It's all so sad, in one sense. The short-term solution to demanipulating the currently-manipulated crude mkt is as plain as day, and can (theoretically) be implemented in any 10 minutes that the Regress (and/or CFTC) want. However, implementing the solution would take one of the rice bowls away from some very big players. Which, in turn, would cost millions in foregone bribes...er, excuse me, lost campaign contributions. The Regress are going to sit on their thumbs for absolutely as long as they can get away with doing so.

I trust you aren't surprised at this, eh, m'friend?

[SAJ]

Toddy -- Regarding the 25% figure, no brokerage of which I'm aware will let any but very AAA clients' equity sink to that level. They'll issue a 'house call' for more margin at about 40% or so. Remember the old song:

''Oh, the mar-ket's not too good to-day,
''Your stocks are look-ing sick.
''In fact, they're mo-ving down a point
''Each time the mar-ket ticks.
''We'll have to have more mar-gin now,
''Of that there is no doubt.
''So you've got-ta show
''With a lot-ta dough,
''Or we'll have to sell you out.''

At the firm I worked for in the 1970s, it was a requirement that every broker trainee write one verse to that tune, with a revised chorus (that's the chorus, above).

I wrote 12.

;^)

[dennisw]

Who is “regress”? Thanks