Date:
Sat, 21 Oct 2006 20:25:19 -0700
From:
"Jim S." <jim6263@cwnet.com>
To:
Subject:
[Fw: *Gasoline Price Manipulation Before the
Elections*]
*Gasoline Price Manipulation Before the Elections*
Is Goldman Sachs manipulating the gasoline futures
market to push prices down before the November
elections?
It sure looks that way.
An article appeared this Saturday in the New York
Times pointing to some unusual trading by Goldman
Sachs in the gasoline futures market. As Raymond
Keller, who spotted the article, points out, "They
always hide the good stuff in the low circulation
Saturday edition."
http://www.kellerkomments.com/2006/10/gasoline-price-manipulation.html
What's Goldman Doing?
Here's how the Times reports it:
Politics and worries about oil supplies may have
caused gasoline prices to go up at the pump earlier
this year, but one big investment bank quietly helped
their rapid drop in recent weeks, according to some
economists, traders, and analysts.
Goldman Sachs, which runs the largest commodity index,
the G.S.C.I., said in early August that it was
reducing the index's weighting in gasoline futures
significantly. The announcement did not make big
headlines, but it has reverberated through the markets
in the weeks since and some other investors who had
been betting that gasoline wouldrise followed suit on
their weightings.
"They started unwinding their positions, and those
other longs also rushed to the door at the same time,"
said Lawrence J. Goldstein, president of the Petroleum
Industry Research Foundation. The August announcement
by Goldman Sachs caught some traders by surprise.
The firm said in early June that it planned to roll
its positions in the harbor contract into another
futures contract, the reformulated gasoline
blendstock, which is replacing the harbor contract at
the end of the year because of changes to laws about
gasoline additives.
Later in June, Goldman said it had rolled a third of
its gasoline holdings into the reformulated contracts
but would make further announcements as to whether the
remainder would be rolled over. Then, in August, the
bank said it would not roll over any more positions
into gasoline and would redistribute the weighting
into other petroleum products...
Some traders speculated that Goldman might have been
concerned about the liquidity of the reformulated
contract and whether other traders would embrace it
because there were so few contracts outstanding. The
open interest, or number of futures contracts taken
out, has increased
ninefold in the reformulated contract since then.
Unleaded gasoline made up 8.72 percent of Goldman's
commodity index as of June 30, but it is just 2.3
percent now, representing a sell-off of more than $6
billion in futures contract weighting.
A sell-off of more than $6 billion in gasoline futures
contracts? Let's put it this way, a $6 billion trade
is not decided on at the lower levels of the firm.
Keller provides some insight into the curious timing
of this trade:
President George W. Bush nominated Henry M. Paulson,
Jr. to be the 74th Secretary of the Treasury on June
19, 2006. The United States Senate unanimously
confirmed Paulson to the position on June 28, 2006 and
he was sworn into office on July 10, 2006.
Before coming to Treasury, Paulson was Chairman and
Chief Executive Officer of Goldman Sachs. So what
does Goldman do just weeks after Paulson is sworn in
as Treasury Secretary? It announces a subtle move
that drives down gasoline prices, short-term. Nice
move, coming just months before the election.
Now it may be hard to swallow for some that market
manipulations go on, but they do at all levels. Penny
stock promoters cook up their schemes, and power
players have their schemes. In traders' jargon, it's
called painting the tape. Indeed, the Washington Post
has revealed that the
government has formed something that is casually known
as the Plunge Protection Team. P.P.T. is supposed to
jump in and buy stocks when things are unruly. Ronald
Reagan formed the P.P.T. when he signed Executive
Order 12631.
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
http://www.archives.gov/federal-register/codification/executive-order/12631.html
It's just another way of painting the tape (Using your
tax money, or newly printed Federal Reserve dollars,
of course). Goldman is a member of the secretive
P.P.T.
But some just don't believe these kinds of
manipulations go on. I have had some email
discussions in recent days with some pretty
sophisticated economists who don't believe Goldman has
manipulated the gasoline market. Their argument goes:
"I will continue to be an economist and look at the
supply and demand issues."
My reply has been, Goldman Sachs understands supply
and demand -- and they also understand trading. When
you sell-off $6 billion in gasoline futures contracts,
you are going to have an impact -- as the New York
Times story correctly pointed out. That is an awful
lot of supply.
Further, this type of aggressive selling will result
in selling by others who will receive margin calls
they can't meet. And by trend followers, who will
suddenly dump gasoline and other commodities. This
is, indeed, exactly what is happening. Goldman Sachs
didn't get to be Goldman by not understanding this
stuff. Supply and demand can explain this
manipulation completely.
My email correspondents also raise a few other points.
They ask, "Why would Goldman Sachs trade this way and
lose money?" The answer here is that Goldman doesn't
lose money. This is a managed commodity index.
Goldman manages the index, but the actual money put up
comes from institutions, hedge funds and other unlucky
saps that trusted Goldman to manage the commodity
index as a hedge against inflation -- not to bail out
of $6 billion in contracts over a few weeks.
The result: Unlucky saps -- Major losses. Goldman --
Zero losses and their man running the Treasury. Which
side of this trade would you want to be on?
But, my email correspondents continue on with one more
charge: "Are you trying to tell me that refiners are
trying to deplete their inventoriesand leave
themselves with real supply problems in the future?
That does not make sense to me."
In fact, depleting inventories is exactly what
refiners would do. If the price of gasoline is
plunging in the futures market, they are going to push
out the door as much inventory as they can, to make
room for the new cheap gasoline they can buy up on the
futures market.
Bottom line, Goldman had to know they were going to
plunge gasoline operator if there ever was one, and
future biographies of him are very likely to note
such.
[Peter Stojan has traded commodities full time for
over twenty years.
http://www.lewrockwell.com/orig7/stojan1.html ]