Yesterday’s CFTC hearings on metals markets and position limits left me nonplussed.  Why were we there?  I heard no compelling argument for why there needed to be position limits.  Commissioner Chilton made some reference to protecting consumers.  That sounds to me a little like a conspiracy to keep metals prices low.  Forgive me, if conspiracy theories are contagious, I may have caught something yesterday.

I did greatly appreciate the opportunity to testify at the hearing.  Chairman Gensler again had difficulty with my name, but was quickly prompted and got it right.  Commissioner Dunn (with 2 Ns), told the story about him putting an M at the end of my name the last time I testified and my response in this newsletter.  His version of it is better than mine and the story gets better every time it is told.  Commissioner Chilton pretty much avoided me.  Most of the Commissioners avoided asking Mr. Murphy of GATA any questions until then end, when  Commissioner Chilton got more than he asked for. 

Commissioner Chilton was impressed that NYSE Liffe US had position limits in gold and silver.  OK.  That would be mini gold and mini silver.  Hardly the stuff of market manipulation.  NYSE Liffe US does have full sized contracts too, but that is not an issue at this point.

I was amused listening to Mark Epstein.  He has an impressive background and made a lot of sense until he did not.  Large orders in the market may or may not be related to large directional positions.  The phenomena he gave specifics about, namely orders ripping through the book to get executed, could be nothing more than a CTA entering and or exiting the market on a stop.  Or a hedge fund.  When one is swimming where there are whales, expect to get impacted by their wake from time to time.

I was very amused listening to Jeffery Burghardt, Vice President of North American Metal Procurement and Global Utilities of Luvata Buffalo, who spoke on behalf of the Copper and Brass Fabricators Council.  Mr. Burghardt spoke ill of index investors and suggested the way to limit their impact on the market was to raise margin requirements on them rather than implementing position limits.  That is all fine and good, but many if not most of the index funds are invested in commodities on an un-leveraged basis, which means that they are putting up 100% of the value of the contract, not the minimum requirement.

Michael Masters I have decided is down-right confused.  I have yet to read his 55 pages of written testimony he presented, but from what I heard yesterday he needs a few thousand more pages before he figures things out.  He wants to outlaw passive investment in commodities.  And he would do that how?  And the negative implications on the price discovery process are what?  Arghh.  More on Mr. Master another day.

When I returned home, I received a couple of very warm endearing emails from people who feel I have insulted them.  Here was my favorite:

If anyone is a rent-seeking parasite it is the bankers and their cartel enforcer, the Federal Reserve. It is you and your banking butt-buddies who are the rent-seeking parasites! No doubt you are part and parcel of the anti-gold cartel who has been running the US and the west into the mud with your gold and silver price suppression schemes. Well, I have news for you: you and your fascist cronies are going to fail and fail miserably. You may go to jail. I certainly hope you do. You, sir, are a criminal and a parasite of the lowest order and should be in jail.

I am glad Mr. Murphy and his crowd had their opportunity to testify. It won’t resolve anything.  I am not sure this hearing resolved anything. To be continued…

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