U.S. Senate Hears George Soros
George Soros, the commodities billionaire, stated before a Senate committee that the rise in the price of oil is due to a speculative bubble causing "peak oil", and hyper-inflation needs to be regulated at a time when bank and hedge fund speculation, fleeing the stock markets on which it has taken huge losses, has poured into the commodities futures markets for oil, foods, and metals. Agreements between the exchanges in London and New York have turned commodity markets into London off-shore havens, beyond US government control.
ICE, the Intercontinental Commodity Exchange in Atlanta, is at the center of the action. A group of banks and hedge funds are simply continuing and repeating the mistakes of the sub-prime crash of the securities markets, and all the derivatives on the commodities markets.
These banks and hedge funds are also buying large volumes of oil products and holding them off the market while they play the falling dollar, which raises the oil product's price. The hoarding is not just speculation, but manipulation of the market, which is illegal in the U.S. but ignored by the Securities and Exchange Commission, the SEC.
The margin requirement on these futures is no more than 6%, leveraging 15 to 1 like an echo of the Bear Stearns blowup. In effect, the price of oil in the US is being strongly controlled by the "London loophole" with massive capital available from Dubai financing.
The pressure is mounting to assert control over these markets by US government regulation and a demand that the FED and the Treasury take steps to stop the dollar from shrinking.
Regardless of the degree to which the London off-shore speculation reaches in the long run, the law of supply and demand will continue to dictate the price of oil. With the world producing 84 billion of oil and the demand at 85.4 billion, the price will stay up until there is equilibrium. The US recently reported conserving 400,000 bbl. a day, but in China they have increased their use by 500,000 bbl. a day. So it goes in many of the newly developing second and third world countries. Higher oil prices means higher food prices which means higher inflation. Government regulation of the economy and securities markets has not been popular in Washington under Bush or for a long time, leaving the so-called free market to adjust itself under the laws of supply or demand without interference.
With oil at $140./ bbl. and airlines in dire straits, jacking up the price of tickets to absorb the higher fuel cost, postponing maintenance, canceling flights, going out of business, and merging to survive. With European truckers staging strikes, blocking the border between Spain and France protesting high fuel prices. People are mad as hell and won't take it anymore, and want their representatives to take action... to do something. Now that the candidates are selected, the upcoming election in November can focus on the key issue on everyone's mind and make political promises to solve it. Whoever takes office in January 2009 will be expected to overcome the inertia of the government and the special interest lobbyists to offer a real energy policy.
A big grizzly bear is chasing two men (i.e. food and gasoline) through the woods. Suddenly one of them stops to put on running shoes. The other says "Are you nuts? You can't outrun a bear with running shoes." The other says, "I don't need to outrun the bear. I just have to outrun you".
Cordell Hicks was a stock broker for 27 years in Albuquerque, NM, beginning with Quinn & Co. and ending with the Royal Bank of Canada’s firm, Dain Rauscher. Since he was in the oil exploration business before becoming a stock picker, his specialty area was oil and natural gas. Now he serves as an independent investment consultant for a few of his former clients and mostly spends his time enjoying the good life in the tropics and admiring the beautiful art in his wife’s art gallery, Galería Corona. If you have any questions or comments, you may contact him at pvtribune@hotmail.com
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