Cramer on BloggingStocks: Dirty manipulation


TheStreet.com's Jim Cramer says it's a farce when a $10 million investment from one rogue trader can move oil up relatively easily.

Here are things that the commodities traders' lobby always stops: margin increases and any sort of regulation against manipulation. They always claim that the markets are too "deep" and they always have stats that back it up. We saw this in the commoditization of stock sectors that are now dominated and manipulated by power ultra futures.

The "deepness" of any sector is, of course, an illusion if you actually trade, but if you don't trade you are tempted to attribute anything to the rise and fall of a sector except manipulation, because manipulation means common-sense margin regulation, which cuts down on fees and therefore ruins the business. No one ever allows a cut in fees -- too much money at stake, too many politicians that can be easily bought, too many agency regulators that can easily be captured.

Manipulation's just part of the game -- a sanctioned part.

But even I, a seasoned realist who is willing to show that manipulation -- legal manipulation, as all manipulation is with these non-rules we have -- was taken aback by the ease with which a single trader could move up oil on a $10 million investment.

What a farce. This guy caused the world to wonder whether gasoline was going over $3 for the July 4 weekend. This guy determined the fortunes of the airline industry. This guy caused people to believe that the consumer-led recovery would "derail" because of higher oil prices. He revealed how fraudulent this commodities market is. (Caveats to all of the usual commodity trading apologists: Of course you are right and my eyes are lying to me again).

It is a great mystery to me why the big oil companies don't sell oil through futures for later delivery when they see these spikes. But maybe they are just as confused or maybe they aren't producing enough to take advantage of the spikes. Whatever. I can only imagine how stupid they feel that they have to be held to this silly little market and how much better off we would be without it. (Usual caveats: Of course we need to be able to trade anything to be able to hedge it, another canard that means more commissions and more fees).

There's a particular pathetic and corrosive series of arguments that make real regulation seem stupid and they will prevail again. Nothing will happen from this unlimited leverage that makes the prices as phony. If nothing happened after the phony $140 spike that contributed mightily to the recession/depression, nothing will happen from this rogue trader's action. The lobbyists and the academics they own will stop anything real from happening.

But at least it is worth pointing out what a gigantic farce it is. Just to make people realize that, once again, our markets are fixed regularly and the regulators, even these new regulators, simply abet it with their lack of initiative and their lack of power to tame the interests. And it is in no one's interests to point it out. I only do so because I have stopped caring about the criticism I receive for believing and talking about what so many do believe but are justifiably afraid to say.

And with that, let the onslaught begin:

1. Jim, you know nothing about commodities. (Wrong, I traded them for years.)

2. Jim, you know nothing about oil trading. (You don't need to know anything to spot manipulation.)

3. Jim, margin requirements have nothing to do with it; we have 42 studies from important universities saying so. (Not one of those professors has ever traded professionally in these markets.)

4. Jim, if there were so much corruption, the Commodities Futures Trading Commission would do something about it. (Sorry, this one's pure comedy -- the CFTC's main job is to fight off regulation from real regulators who want to do something about it in Washington.)

Finally, to all of those people who will now attack me, ask yourselves, do you have any financial interest in the debate? I don't. What's my angle? I hate manipulation. There's a dirty agenda.

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO.

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