Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Dave’s Daily

MARKET COMMENT

Courtesy of Dave Fry at ETF Digest, August 20, 2009

IF AIN’T BROKE, DON’T FIX IT.
How the CFTC is Needlessly Breaking Good Products

DBC (PowerShares DB Commodity Tracking Fund) and DBA (PowerShares DB Agricultural Fund) are in the news as the CFTC (Commodity Futures Trading Corporation) has revoked the position limit exemption for these funds. They have also intimidated the issuers of UNG (United States Natural Gas Fund) into not issuing more shares to meet demand effectively breaking the issue as an effective product and needlessly costing investors a fortune. In the case of UNG, this is part of government effort to squash speculation in energy markets, always a politically correct or populist thing to do.

In 2006 Deutsche Bank (DB) creatively brought to market DBC and DBA and later partnered these with PowerShares in a marketing arrangement.

The lead product, DBC is a wonderful creation. The primary benefit to investors was and is to give them exposure to commodity markets which are uncorrelated to conventional markets. This reduces risk as most studies have demonstrated. Further benefits included allowing investors market involvement without having to invest in expensive and often illiquid commodity pools, or exposure to potential high leverage…

So why pull the exemption now?

The image above may seem a little over the top and perhaps it is but let’s look at some facts.

From Wikipedia below is an abbreviated description of Gary Gensler, the new agent of change from the Obama Administration.

“After receiving a BS and an MBA from the Wharton School of the University of Pennsylvania, Gary Gensler spent 18 years at Goldman Sachs, making partner when he was 30, becoming head of the company’s fixed income and currency trading operations in Tokyo by the mid-’90s, and eventually the company’s co-head of finance.[3]

As the Treasury Department’s undersecretary for domestic finance in the last two years of the Clinton administration, Gensler found himself in the position of overseeing policies in the areas of U.S. financial markets, debt management, financial services, and community development. Gensler advocated the passage of the Commodity Futures Modernization Act of 2000, which exempted credit default swaps and other derivatives from regulation.

In March 2009, Senator Bernie Sanders (I-VT) attempted to block his nomination to head the Commodity Futures Trading Commission. A statement from Sanders’ office said that Gensler “had worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of AIG and has resulted in the largest taxpayer bailout in US history.” He also accused Gensler of working to deregulate electronic energy trading, which led to the downfall of Enron and supporting the Gramm-Leach-Biley Act, which allowed American banks to become “too big to fail.”[5]

Is Gensler on the puppet strings of Goldman Sachs? Well, once in the brotherhood, always in the brotherhood is probably enough said. But it goes deeper, much deeper. In the above from Wikipedia note the section regarding swaps and Commissar Gensler’s involvement with them. These are big in commodity market day to day trading. They dwarf anything DBC can or will do. And, intraday, these swaps exceed position limits routinely if regulators can figure them out. This doesn’t even include what happens daily in OTC markets…

Entire Market Comment here>>.

 


Tags: ,

Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!