Streetwise Professor

June 16, 2022

Oh Please. Not This BS Again.

Filed under: Commodities,Derivatives,Economics,Energy,Politics,Regulation — cpirrong @ 6:37 pm

I’ve often written that every big move in commodity prices leads to a reprise of Casablanca: “Round up the usual suspects!”

The usual suspects, of course, being speculators.

And here we have a case of the usual suspects calling for a roundup of the usual suspects. People like Michael Greenberger and Tyler Slocum. I would be more than glad to move on. Them apparently not so much.

Now they feel especially energized because they can blame speculators not just for a rise in the price of this or the price of that, but the price of everything. Yes, boys and girls, speculators cause INFLATION!!!!! THEY ARE DRIVING UP THE PRICE OF EVERYTHING!!!!

A handful of congressional Democrats are turning their attention to an arcane loophole that, as TYT previously reported, is driving high prices for gas and food. Rep. Ro Khanna, D-Calif., told TYT that he wants the Biden administration to close the loophole, which lets Wall Street speculators gamble on commodity prices, driving inflation.

I’ll get back to “Ruh Ro” Khanna in a moment.

What Greenberger and others are serving up is the same-old, same-old that was discredited long ago. It’s too tedious to reprise the arguments: go back and look at my posts from 2006-2009 or so. The BS hasn’t changed, so the response to the BS hasn’t changed.

The quickest counterpoint: If–and even Paul Krugman and I agree on this, people, so the apocalypse must be nigh–speculators are driving prices above the competitive level determined by supply and demand fundamentals, (a) inventories increase, and (b) speculators hold the inventories.

Well, inventories are dropping to rock bottom levels in everything from oil, to diesel, to industrial metals. So (a) isn’t happening. And if (a) isn’t happening, (b) can’t happen.


But this would require Greenberger et al to have a modicum of understanding of economics. In fact, I once forced him to admit he has no such understanding.

We were witnesses at a House Ag Committee hearing on speculation and oil prices in July, 2008. Right about the time WTI hit its all time high. (I published a WSJ oped about the same time.). Greenberger and I were on a panel. He tried to make an argument that prices were irrational because they hadn’t gone down when the Saudis announced an increase in output. I pointed out that the real shortage was in low-sulfur crude (like WTI), driven in large part by Europe’s new low sulfur diesel rules. The Saudi oil was high in sulfur and didn’t address this issue at all, so it didn’t impact the prices of WTI and Brent (which are low sulfur).

In reply, Greenberger stuttered: “Well, I’m not an economist . . .” I interrupted: “That’s the first thing you’ve ever said that I agree with.” (Yeah. I know I’m bad. I can never pass up an easy shot.)

That still holds true. He ain’t an economist. He knows no economics. And anybody who listens to him bloviate about economics is wasting time and killing brain cells. (Though looking at his audience–Salon AKA Daily Dipshit readers, congressional Democrats–that latter is pretty much impossible.)

These geniuses think they’ve uncovered some damning new evidence. In footnotes:

But thanks to an obscure CFTC passage — Footnote 563, in regulatory guidance — buyers and sellers of oil and other commodities are outnumbered something like 10 to one by Wall Street traders, none of whom have a genuine buyer’s incentive to keep prices low, because few of them ever actually buy it; they mostly bet on it.

Uhm, that factoid, or a variant thereon, has been tossed around every time this tiresome debate has occurred. It was irrelevant every one of those times. It’s irrelevant now. It means nothing.

But some geniuses in Congress are going to flog this dead horse yet again. FFS.

But this is not the only idiocy that is being resurrected. Ron Wyden D-But you knew that-OR is proposing a revival of the windfall profit tax.

Another ’70s acid flashback. I’m trippin’, man!

Yeah that worked so well under Carter. Hey! Here’s an idea! Let’s reduce the incentive to invest by reducing payoffs when the investments are most valuable! What could go wrong?

Another hardy perennial: Our ranting senile narcissist in chief is demanding refiners cut prices and increase output. Er, look at the EIA capacity utilization numbers, dude. Refineries are operating flat out.

Apparently they did that, because today they mooted restricting exports instead. Another dumb idea.

And then there’s Ruh Ro Khanna:

h/t @CantillonCH

Khanna’s brainstorm is–get this–to have the government “buy the dips” and then sell commodities to consumers at low prices.


Well, because it’s so stupid only a California Democrat could come up with it.

Of the top of my head, Family Feud fashion, the top 4 reasons why this is stupid:

  1. The best traders can’t time the market consistently. Why would anyone possibly believe government GS-13s or whatever could?
  2. The government wouldn’t be a price taker–it would be driving prices.
  3. Every trader in the world would be trying to front run the government. Talk about creating speculative opportunities! Speculate on what the government is going to do!
  4. A California Democrat came up with it.

Bad economic times bring out bad economic ideas. Stupid never goes out of style in politics, and bad ideas never die. And that’s our reality today.

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  1. Refineries are operating flat out.” What your take on the cause of high gasoline prices, Craig?

    Comment by Pat Frank — June 17, 2022 @ 12:31 am

  2. do you think nothing of this ( makes any sense?

    Comment by Mario — June 17, 2022 @ 3:17 am

  3. Professor, thanks for the interesting article!
    I wanted to ask you question about different topic. There are rumours about Biden administration’s intention to give UAE security guarantees. What is your opinion about this idea? I suspect that you don’t support it.

    Comment by mmt — June 17, 2022 @ 5:26 am

  4. Being old enough to have lived through the 1970s is becoming an increasingly valuable asset.

    Comment by Andrew Stanton — June 17, 2022 @ 6:40 am

  5. @Mario. Yes. I think nothing of that. Idiocy is idiocy, being all tech-y and stuff by invoking AI doesn’t change that. It is also subject to the exact same empirical refutation that I outlined in my post, and which is a point I have made for going on 15 years.

    Comment by cpirrong — June 17, 2022 @ 9:12 am

  6. @Andrew Stanton. Saves on drugs. Just go with the flashbacks.

    Comment by cpirrong — June 17, 2022 @ 9:20 am

  7. Off topic: for those of you with children, the FDA has approved use of the mRNA drug for children down to age 6 months. Do not, under any circumstances, let your child get this shot.

    The nano-particle-encapsulated mRNA does not remain in the injection site. About 75% of it travels into the blood stream, where it encounters other tissues and organs. Target organs include the ovaries and testes, which can then suffer chronic inflammation. Sterility may result. Other very bad outcomes are also possible.

    Children are immune to corona virus. There is zero medical reason for the shot — for anyone, actually, much less for children.

    Comment by Pat Frank — June 17, 2022 @ 9:28 am

  8. A “market” = a “loophole”. Now I’ve heard everything. Nunc dimmittis.

    It’s true that speculators outnumber real commodity buyers. Generally they make small profits, by picking up pennies in front of the steamroller. Real commodity buyers are happy with this arrangement because it liquifies the market. In other words, they are insured against wild fluctuations where liquidity is absent. So far as I can see they are happy to pay the insurance premium because it allows them to plan their sales of finished goods, whether it’s gasoline or loaves of bread.
    But I suppose my fifth grade explanation is wasted here, perhaps I should write to my MP.

    Comment by philip — June 17, 2022 @ 6:03 pm

  9. @ pat frank
    It is a scandal. Giving a drug to someone sick and in danger is one thing, giving a drug to someone who doesn’t need it is quite another.
    I foresee a tsunami of claims. Against the drug companies I hope, but given the Emergency Use Authorisations I suspect it will be the taxpayer who picks up the tab.

    Comment by philip — June 17, 2022 @ 6:14 pm

  10. Some people can make a career out of being verifiably wrong for years. Paul Ehrlich. Bill McKibben. Paul Krugman. That guy with” The World Ends Tomorrow” sign. Tyson Slocum.

    It is truly amazing.

    I mean, even a broken clock…

    Comment by Michael Cosgrove — June 19, 2022 @ 3:08 am

  11. O/T: Rashan Defence Ministry claiming to have killed Ukraine’s entire general staff in a Kalibr missile strike.

    Comment by Ex-Global Super-Regulator on Lunch Break — June 20, 2022 @ 3:27 am

  12. @Michael–So true. Sad, but very true.

    Comment by cpirrong — June 22, 2022 @ 5:56 pm

  13. Ah yes, the regulators’ and politics downs’ modified George Washington defense: “I cannot tell a lie, they did it!”. The pathetic thing is that if the really wanted to see the problem, all they need is a mirror.

    Comment by Sotosy1 — June 23, 2022 @ 3:24 pm

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