Streetwise Professor

April 4, 2015

The IECA Libels Me: I Am Oddly Flattered

Filed under: Commodities,Derivatives,Economics,Energy,Exchanges,Politics,Regulation — The Professor @ 10:22 am

The Industrial Energy Consumers of America has submitted a comment letter on the CFTC’s position limit rule making. The letter contains this libel:

If one looks at the agenda from the February 26, 2015 meeting (see below), other than CFTC presenters, every presenter has views that are not consistent with CFTC action to set speculative position limits. Professor Pirrong has a long history of client paid studies in this area and will need to identify who paid for the underlying data and study for his results to be credible on this subject.

If “this area” is the subject of speculation and position limits, this statement is categorically false. I have not done one “client paid study” on these issues. Period.

In fact, most of my writing on speculation has either been in my academic work (as in my 2011 book), or here on the blog. I have been arguing this issue on my own time.

Actually, I did do one client paid study on these issues about 11 or 12 years ago. For the IECA, in fact, which was just certain that the NYMEX’s expanded accountability limits for natural gas had caused volatility to increase. They hired me to study this issue. I did, using methods that I had employed in peer reviewed research, and found that IECA’s firm beliefs were flatly contradicted by the data: data that IECA paid for, analyzed using methods that were disclosed to it. IECA decided not to release the study. Surprise, surprise. So IECA knows from direct experience that my opinions are not for sale.

So just who here is hiding something? Hint: it ain’t me.

I could provide other examples. The GFMA study on commodity traders is a well known case: it was written up in the Financial Times. Another example that is not as well known was my work on a project for the Board of Trade in 1991-1992, in which I studied the delivery mechanism for corn and soybeans. (The resulting report was published as Grain Futures Markets: An Economic Appraisal.) I concluded that the delivery mechanism was subject to manipulation, and recommended the addition of delivery points at economic par differentials to Chicago. This was not the desired answer. On the day I presented my results to the committee of the CBT that commissioned the study, the chief economist of the exchange pressured me to change my recommendations. I refused. The meeting that followed became heated. So heated, in fact, that the head of the committee and I almost literally came to blows when I refused to back down: committee members from Cargill and ADM actually took the guy bodily from the room until he calmed down.

So the track record is abundantly clear: I call them like I see them, even if it isn’t what the client wants to hear.

In fact, it is IECA’s ad hominem that lacks credibility. My white papers for Trafigura are not related to the issue of speculation at all. To the contrary, they are related to the issue of physical commodity trading. I did a study for CME in 2009 on the performance of the WTI futures contract. Nothing related to speculation. Data sources disclosed, and the methodologies are clearly set out. Again, if IECA has specific critiques of any of these analyses, bring it on. Anytime. Anywhere. And they can leave their libelous insinuations behind.

Perhaps IECA head Paul Cicio is still sore over how I smacked him around at a House Ag committee hearing in July 2008. Cicio said it was obvious that speculation had inflated energy prices. He used the metaphor of a swimming pool: if a bunch of speculators jump in, it has to raise the water level. I retorted that this shows the exact opposite, because all the speculators get out of the pool before contracts go spot. Long speculators are sellers of futures as delivery approaches, meaning they are out of the pool (the physical market) as delivery approaches, and hence can’t be inflating spot prices.

If Cicio is still sore, all I have to say is: Get over it.

To reiterate: IECA’s statement in a document submitted to a government regulatory agency is categorically false, and libelous.

And oddly flattering. You don’t go out of your way to libel the irrelevant. The fact that this organization feels compelled to slur me by name and attack my credibility (even though the attack is false) means that they must believe that I pose a threat to them. I sure as hell hope so.

Word to the wise. Don’t bring a wet noodle to a gunfight. (I cleaned that up.) You’re going to lose.

 

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3 Comments »

  1. Don’t shoot the messenger it will kill your message.
    It’s not because roughly I disagree with 50% of what you said in “NOT TOO BIG TOO FAIL” (starting from Part IV to VI, that I will shoot you saying look “People this guy is paid by Trafigura anyway”.

    I very like want you say “Global Commodity Trading Firms uniformly tout their expertise in, and emphasis on risk management” P.16

    It’s not because that they are Dogs, that they are the same when this regard, Trafigura has a very mature trading system, and uses a diciplined transactional approach because they know better than anybody “the beast”. see Crude Oil Trade Transactional and Financing Timeline http://jacquessimon506.wordpress.com/2015/03/02/10096/

    It’s a grade A student in the class. But what about others ?

    Simon Jacques

    Comment by Simon Jacques — April 4, 2015 @ 12:29 pm

  2. […] I think that’s what Craig Pirrong means here: […]

    Pingback by Don’t bring a limp dick to an orgy | Tim Worstall — April 5, 2015 @ 2:54 am

  3. I think it was Dean Swift who said that one knows a genius by the sign that a confederacy of dunces will arise against him. My corollary has been if the first attack against an argument is ad hominem, the argument probably deserves a careful review because it probably has merit.

    Comment by Sotos — April 6, 2015 @ 3:40 pm

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