Friday, August 22, 2008

Oil Price Speculation - Who do you believe?

For the past two years the Coltons Point Times has been investigating and raising the alarm about the federal rules changes that allowed oil futures to exist and then to be less regulated, that allowed electronic futures purchases from the futures exchanges, and that allowed electronic foreign purchasing of futures on American commodities markets.

We pointed out the failure of the Commodities Futures Trading Commission (CFTC) to monitor and regulate the futures industry and the need to commit federal resources to investigating links between investment houses losing billions in sub prime mortgage markets and the same houses using alternative investment techniques to manipulate the multi-trillion dollar institutional funds and drive up the commodity prices.

In spite of denials from the financial analysts, government, Treasury and oil industry that such practices were being used, the CFTC finally launched an investigation in late May and on August 21 The Washington Post published an article saying evidence of widespread speculation possibly involving over 80% of the contracts sold on the New York Mercantile Exchange have been discovered in the preliminary investigation.

Of course the CFTC and Wall Street are saying The Washington Post is wrong but Wall Street has tried to cover up every scandal by the financial Dark Angels of Wall Street that stole blood money from American and world citizens including the schemes since 2000 resulting in about $35 billion in fines. As for the CTFC, if they were doing their job we wouldn't be in this mess in the first place. But I love it, who do you want to believe, Wall Street and the CTFC or The Washington Post?

The same giant investment houses responsible for the sub prime disaster manage your money, the institutional funds of America. These are the mutual funds that target persion funds, endowments, and other high net worth entities and individuals. Institutional funds usually have lower operating costs and higher minimum investments than retail funds. Often their main objective is to reduce risk, so they invest in hundreds of different securities, which makes them among the most diversified funds available. They also do not tend to trade securities very often, so they are able to keep operating costs to a minimum. Although in the past investors typically needed at least $1 million in order to invest in an institutional fund, nowadays some discount brokers offer access to these funds for smaller amounts. (Definition from

A capital pool of up to $35 trillion to $70 trillion may be in these institutional funds. Now this includes your retirement, insurance, IRA, 401K, and even investments if you have deep pockets. Since you may be like me and have trouble grasping the size of a trillion dollars, let alone 70 trillion, just remember that the total size of the dreaded US National Debt is $9.6 trillion, meaning the institutional funds are a heck of a lot bigger than the total national debt.

This morning Becky Quick of CNBC, a young up and coming reporter and favorite of billionaire Warren Buffett did a three hour interview with Warren that should be required viewing for everyone in America and on Wall Street. This Midwestern born financial reporter was excellent while Buffett, in his typical low key Nebraska style offered wisdom so powerful that the stock market went up over 100 points and the oil prices dropped over $2 just during the time of his interview.

Stay tuned. As Warren Buffet, our favorite financial guru known as the Oracle of Omaha and the richest man in the world says, "You only find out whose been swimming naked when the tide goes out. Well we found out that Wall Street has been kind of a nudist beach. There has been one discovery after another of firms that either didn't know what they were doing or did things they shouldn't have knowingly."

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