Manipulated Markets -- A Guarantee of Higher Prices, Shrinking Supplies!

I wrote this in Marketwatch today regarding attempts by Washington to control the commodity markets:

A shrinking pool of liquidity is EXACTLY what Soros, Goldman, and other large money people want. A blue whale can leverage its weight much more in a small pond that in an ocean of liquidity. That's why they are endorsing this idea. Soros is a masterful expert at finding markets small enough for him to initiate artificial momentum, and then he exits the market once that momentum builds, causing a crash later.The greatest way to check this power of the blue whales is to keep the liquidity pool huge so that no player is big enough to throw their weight around. Another is the emergence over the past year of large funds that SHORT these same markets, thus counter-balancing the funds that take long positions. Goldman execs and Soros must be jumping for joy at some of these attempts to control prices by manipulating the market.

The new CFTC rules indicating better tracking of fund categories has been needed for a long time. I applaud that! The transparency will be helpful. The CFTC study mentioned in the article suggests that we may be surprised with this additional tracking that the influence of these funds is far less that the news media has lead us to believe.

For one thing, the CFTC study indicated that speculative funds tend to be split 50/50 between longs and shorts, represent only about 15-18% of the total contracts, and tend to mollify rather than amplify the sizes of price run-ups, since non-exchange traded commodities have demonstrated much LARGER price movements than the futures-traded ones (surprising, but true.).This is NOT what the news media has lead us to believe.

On the other hand, attempting to manipulate prices by limiting the liquidity pool will counter-intuitively have the opposite effect. It will increase the leverage of large players, cause capital flight that will sink the Dollar, and send more of these scarce commodity supplies to other countries -- like China -- that are willing to pay market price without attempting to manipulate it. Long lines at the gas stations and much higher prices will unfortunately but absolutely be in our future. The more Washington attempts to control and manipulate the market, the worse it will be!

This is precisely what has occurred as Chavez has done the same in Venezuela over the past 10 years! The more manipulated a market becomes, the more natural laws of markets amplify the aberrations, shrinking supplies and driving prices higher. We can try to manipulate the laws of nature, but as the old TV ad said: "You can't FOOL mother nature!" Likewise, you can't flaunt the laws that govern the financial markets for long -- it always hits back with lightening strikes! It will come back to bite us with higher prices and fewer supplies -- GUARANTEED!