Lucky readers, the companion to the left of me last night at dinner mistakenly -- and I do believe it was by mistake and that he isn't a fifth columnist -- left a memo addressed to "Fellow Futures Traders." It was the battle plan, the battle plan to stop the regulation, and I am printing it here for all to see.
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Dear Fellow Futures Traders:
Today we find ourselves under assault by a son of Illinois, the great capital of futures, and his chief of staff who has always done our bidding.
It is time we swing into action, because the notion that we should ever have to put up more than 10% capital or have to tell people who we represent or that there should ever be a distinction between investing and speculating and real or phony buying is the moment we become communists and we should expect all of our property to be expropriated.
So here is what we must do, our to-do list, while we swing around millions turned into billions by our own self-regulation.
1. Call the congressman you bought in the last dozen elections and explain to him the way the world works and the deal he made when he took the money. Be very explicit -- it was for unfettered capitalism and the right to do whatever the heck we want in these markets.
2. Gin up those professors from the schools you gave a lot of money to and have them write papers that show the markets are deep and can't be manipulated.
3. Get some of those George Bush regulators, the ones who didn't believe in regulation, to make statements talking about the importance of free markets, Thomas Jefferson and the Fourth and Fifth Amendments.
4. Get on TV and fool anchors into saying that you have never seen manipulation and the markets are way too big to be manipulated.
5. Call some big clients and have them put in full-page ads in The New York Times about "The Meaning of Freedom in a Democracy."
6. Rustle up some captains of industry who don't know what they are talking about and give them the speech about how much liquidity speculators provide, which makes for "better markets."
7. Vehemently deny -- even though we know otherwise -- that the $140 oil price had anything to do with manipulation; insist it was 100% China-driven.
8. Blame the problems we have been having on too much regulation and oversight.
9. Call Rahm Emmanuel, the president's chief of staff, and remind him he is from the great state of futures.
10. Threaten to pull offshore.
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Look, we know I am being facetious, but we also know that we would be better off if there were no futures, just brokers doing buying and selling. The commodity can't be produced as it is traded, and it can't be consumed as it is being traded. At a minimum, a real margin -- like we have for stocks -- will make the market work a little more like a real oil market does, which is all you really want with this incredibly important fuel.
Remember, it is bizarre that stocks, of no national importance whatsoever, require 50% margin, but this commodity, of national and international importance -- the most important commodity in the world -- requires almost nothing to buy.
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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Reader Comments (Page 1 of 1)
7-08-2009 @ 11:23AM
Dan Barnett said...
Jim,
Please don't forget that futures play an important role in allowing Manufacturers to lock in the costs of their raw materials and Producers/Farmers to lock in the price they receive for their produce.
And I'd like someone to explain to me how a $10m account can impact a $trillion market.
That said, the lack of regulation in futures (& currency) markets is hard to understand.
7-08-2009 @ 1:52PM
Iridium said...
Dan,
A $10m account can influence a $trillion market because that $10m can be leveraged 100:1 and in some cases even more. Think about it this way. You have $200 in your pocket but can leverage it to $20,000. You go out and buy a brand new car. You hand the $200 to the dealer and say that the rest of the money will be paid for with future gains. Do you think you'll get the car off the lot? Why to people get to buy stock that way?
The notion that you can lock in a price months in advance for something runs contrary to a free market. It sounds like a good idea but in practice only allows for fraud and manipulation.
Traders make bets that a future event will cause prices to skyrocket and they cause the price to rise even though that event might never happen. If a company locked in a price before the speculator went wild then the company selling the manufactured material suffers. An event out of their control caused their costs to go up and they lose profit. That is why many companies only allow quotations to be valid for 30 days.
So in order to prevent this, the company may pay off someone in the speculative game to give them advanced notice of their market moves so they can lock in prices most advantageous to them. The sick cycle continues and we end up paying far more than we ever should based on true market fundamentals.
What seems like a good idea actually causes far more harm than good. We are far better off without futures trading. Why should you be allowed to bet on something that will happen in the future with money that is not yours? The futures market is a Casino and some brokers have a magnet held to the roulette wheel.
7-08-2009 @ 3:54PM
beachpaul said...
I didn't need to go to Business School. My father taught me how to count. I got a degree in Liberal Arts because he also taught me that ninety per cent of business is getting along with people you can't stand. He wanted me to understand different viewpoints. Everyone has their reasons and that is the problem with this world. Liberal Arts taught me to doubt, to question, and to research. Our system in America is a slamdance of special interests. The music never stops, the dancers constantly change and dance to the beat of their own self interests. Some of us play the music the rest of us move with it.
Just move Jim. You are not a musician. Stop stating the obvious. Tell us something we don't know.
7-12-2009 @ 10:36AM
Steve said...
A memo (ambiguously) addressed to Fellow Futures Traders is "accidentally" left behind for a TV money show host to read and reveal?
Sorry, Jim -- you've been Punk'd.