

The Global Oil Scam: 50 Times Bigger than Madoff  - known
http://seekingalpha.com/article/172797-the-global-oil-scam-50-times-bigger-than-madoff?source=hp_mostpopular

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1gor

      You can chart the damage done by Goldman Sachs and 
      their   gang of thieves by looking at commodity pricing 
      pre- and post-ICE. Before ICE, commodities followed a more 
      or less normal growth path that matched global GDP...
    

Funny that, many investors think that global commodities boom since 2000 has
been triggered by the Fed dropping interest rates close to zero about that
time to avoid post-internet-bubble recession.

Combine that with some famous central bank character wanting to drop money
from helicopters to avoid the US sliding into Japan-like deflation...

Combine that with China and the Pacific region starting to emerge as economic
powerhouse about that time...

And you can send any European pension fund shivering from anticipation of
collapsing dollar (and value of their treasury holdings) and scrambling to
protect themselves by buying commodity index swaps. The demand was there and
Goldman Sachs (and other smart/hard working banks) obliged and engineered as
many commodity-linked instruments as possible, supported by as much liquidity
as they can create.

Commodities boom of past several years is simply an implicit devaluation of
the dollar. Commodities supply is more or less fixed. Chinese industrial
growth has been between 10 and 25% since 2000 (affecting world demand for
commodities/energy). US dollar interest rates have been somewere around 2% on
average since then, and credit growth was massive (dollars are still plentiful
in these times of 'stimulus').

How would the author explain gold breaking $1100 this week (up from under $300
in 2000)?

You can blame this currency collapse on the 'gang of thieves' or on the US
monetary authorities, or simply on the historical trends. I won't care that
much, but the article author is obviously an ignorant populist.

------
Tichy
I only made it through the first part, it is simply too much text. However, I
don't see the scam. Trading futures is not a scam, or is it?

Making a company look better with round-trading might be a scam (I don't know
the laws about that), but I don't see how that should be related to the price
of oil? It is related to the price of the company doing the round-trading (and
if people notice what is going on, the price will probably crumble to pieces).

Sorry that I did not read the whole article, but I am weary of all those
articles that try to blame evil traders and markets for everything. It just
comes in so handy because it is a complex system - so if you say "it is their
fault", it is difficult to argue against it.

In reality I don't see how riskless trading should be possible. Buying futures
is not riskless.

In that sense, I don't think trading can be evil per se. What is evil is to
lie to people about the real value of things, and thus selling them crap. By
trading stuff on the exchange markets you are not lieing, though.

~~~
scotch_drinker
It is fascinating that you say you don't understand how something could be
possible and that you are weary of articles that blame X for everything and
yet you can't be bothered to spend 10 minutes to read an entire article.

It shouldn't be so hard to see that a round trip trade where one firm sells a
commodity to another and then buys it right back at the exact same price would
have some sort of influence on the market. If it did not, what would be the
point of such a trade? A large enough group of firms could effectively support
whatever price they wanted assuming the market was reasonably rational.

Because the underlying asset never changes hands, the pricing is naturally
suspect. Futures trading in an non-manipulated market is far from riskless but
if you can manipulate the market over the short term of the contract (say 6-18
months), it certainly can be effectively riskless.

There are many more points of interest in the article that you were unwilling
to read but very willing to comment on.

~~~
yummyfajitas
Repo agreements (the sell and then buy later at the same price contract) allow
market makers to add liquidity to the market without facing a price risk. They
also allow commodity holders to obtain short term financing for other
investments.

If you have oil you are holding for the long haul, but want to engage in a
short term investment requiring cash, you do a repo. You enter into a repo
agreement, sell the oil, invest the cash you get, cash out and rebuy the oil
at a fixed price.

Incidentally, if you want to criticize repos, your first target should be the
Fed, who issues more repos/reverse repos than Goldman Sachs.

