Congressional Madness

by Larry Levin


Congress held another circus today regarding oil and gasoline prices. Lawmakers brought before the House Energy and Commerce Committee four analysts that said exactly what they wanted to hear: speculators are to blame for increasing fuel costs. Gee-wiz, Congress found some analysts that agreed with what it wanted to hear, which isn't always right or even the truth. It's odd that there weren't dissenting opinions - isn't it?

You already know that I have little respect for Wall Street analysts, so it surely wouldn't surprise you to hear that I laughed hysterically when I read the following. (Keep in mind, all four of the analysts agreed.) Record oil prices are inflated by speculation and not justified by market fundamentals, said Fadel Gheit of Oppenheimer & Co. Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel.

Wow! By saying this to this committee, he was in fact recommending regulations to stop speculation. Who does he think he is? Are these analysts in charge of the oil books at their firms - went SHORT last month - and just pissed off about it? I mentioned another analyst last week that didn't remove a buy recommendation on a stock until it had lost 87% of its entire value. Was this analyst just worse than those before Congress? Does it matter? Can any of these clowns be trusted? Since Oppenheimer & Co. is supposed to be a free market based firm, I would suggest that Mr. Gheit be given his walking papers in the morning. It sounds like he would fit in better with a left-wing group like, Congress, for example.

So what we have here is another political witch hunt. Speculators should be BURNED at the stake! Ummm, I thought the Big Bad Oil Companies were to blame? Oh, I forgot. That's past - that was last month's witch hunt. My bad.

The notion that gasoline prices will drop by half if speculation is controlled is absolutely absurd. First, the price of gas has increased roughly a third over the last six or so turbulent months when the price of crude oil has more than doubled. If oil drops from (say) $140/bbl to $100-120 with price controls (which is what Congress is talking about), we'll be lucky. And if that happens, gasoline prices may slip from $4/gal to $3/gal--a 25% drop--where it was a year ago--MAYBE.

Question: Is $3.00-gasoline going to curb demand? NO! It will only increase demand, which will drive the price right back to where it is today.

Second, not even Congress, home of the huff-puffery emperors of self-righteous indignation, can control a GLOBAL market. So while speculators may not be able to operate here, they can and will operate anywhere else in the world they want. Of course, the result will be that other countries will buy oil and gas at market prices while US supplies shrink and our financial base (equity & commodity markets) deteriorate further. It shouldn't be called the House of Representatives; it should be called the House of Fools and we'll all end up paying for it.

Congress and the Federal Reserve are to blame for a large part of this crisis. Our dependence on oil and the idea of peak oil has been discussed for years.

Congress has failed to pass an energy policy.

Congress has not allowed US land to be drilled, like ANWAR.
Congress has spent money on pork projects but very little on alternative energy.
Congress has been dead locked for years on every important issue.
Congress will not allow offshore drilling.
Congress has a 12% approval rating.

Congress' profligate spending drives up deficits and the US dollar down.
The Federal Reserve keeps interest rates too low, further weakening the US dollar.

The weak US dollar is the main engine of commodity inflation, including oil!

Why would anyone believe Congress can be expected to fix this problem?

Here are a few thoughts or questions along the lines of this Congressional madness - If speculation in oil is bad, why is housing speculation good? The housing/credit boom has led to a global bust - not oil speculation. In fact, this housing/credit bust will cost investors, homeowners, and savers tens of TRILLIONS of dollars before it is all over. Savers have already been raped by the Fed, to save Wall Street banks of course, to the tune of trillions of dollars due to artificially low interest rates. (Umm, I missed the vote on that decision. Oh right, I wasn't asked if it was OK - they just did it.)

If speculation in oil is bad, why is it good in equities? The NASDAQ speculation boom led to a huge bust. The NASDAQ is still going lower from the high of 2000 and has already cost American investors (near the low) $9-TRILLION.

So why change the law to make oil speculators look like EVIL personified? Because it is easy, and that's how Congress works - whatever is easiest.

Now repeat the new soon-to-be pledge of allegiance after me, I pledge allegiance to the flag, of the Banana-Republic of America, and to the Regulators for which it stands, one nation, under an idea, that liberty and price controls can be regulated to however they want, without consequence.

Real Time Trading Signals*for

Trade Date: 6/23/08

E-Mini S&P Trades*
(before fees and commissions):

1) PP buy @ 8:35am at 1322.75 = -2.00*2

2) VA buy @ 9:05am at 1317.50 = +4.00 (1 lot)

3) OTF sell @ 10:00am at 1320.00 = +3.00 (1 lot)

4) OTF sell @ 11:00am at 1320.50 = +2.50 (1 lot)

5) Engf sell @ 1:25pm at 1322.00 = +.50 (1 lot)

6) Algorithm trades (2)...combined total...+13.25


E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 11:27am at 722.6 = +.2 (1 lot)

2) Buy @ 12:35pm at 723.4 = +.5 & b/e...+$70


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