[lbo-talk] Re: [PEN-L] Gasoline price manipulation?

Michael Perelman michael at ecst.csuchico.edu
Sat Oct 7 16:23:45 PDT 2006


I posted something about this on 27 September after reading the story in the Wall Street Journal. The article in the WSJ mentioned Doug Henwood's research without mentioning him.

http://michaelperelman.wordpress.com/2006/09/27/gas-prices-and-conspiracy-theory/

Julio Huato wrote:
> Note my question mark. I'm too ignorant of this (and all other)
> market(s) to take a categorical stance on the issue.
>
> Julio
>
> * * *
>
> http://www.lewrockwell.com/orig7/stojan1.html
>
> Is Goldman Sachs manipulating the gasoline futures market to push
> prices down before the November elections?
>
> It sure looks that way.
>
> An article appeared this Saturday in the New York Times pointing to
> some unusual trading by Goldman Sachs in the gasoline futures market.
> As Raymond Keller, who spotted the article, points out, "They always
> hide the good stuff in the low circulation Saturday edition."
>
> What's Goldman doing?
>
> Here's how the Times reports it:
>
> Politics and worries about oil supplies may have caused gasoline
> prices to go up at the pump earlier this year, but one big investment
> bank quietly helped their rapid drop in recent weeks, according to
> some economists, traders and analysts.
>
> Goldman Sachs, which runs the largest commodity index, the
> G.S.C.I., said in early August that it was reducing the index's
> weighting in gasoline futures significantly. The announcement did not
> make big headlines, but it has reverberated through the markets in the
> weeks since and some other investors who had been betting that
> gasoline would rise followed suit on their weightings.
>
> "They started unwinding their positions, and those other longs
> also rushed to the door at the same time," said Lawrence J. Goldstein,
> president of the Petroleum Industry Research Foundation. The August
> announcement by Goldman Sachs caught some traders by surprise. The
> firm said in early June that it planned to roll its positions in the
> harbor contract into another futures contract, the reformulated
> gasoline blendstock, which is replacing the harbor contract at the end
> of the year because of changes to laws about gasoline additives. Later
> in June, Goldman said it had rolled a third of its gasoline holdings
> into the reformulated contracts but would make further announcements
> as to whether the remainder would be rolled over. Then in August, the
> bank said it would not roll over any more positions into gasoline and
> would redistribute the weighting into other petroleum products...
>
> Some traders speculated that Goldman might have been concerned
> about the liquidity of the reformulated contract and whether other
> traders would embrace it because there were so few contracts
> outstanding. The open interest, or number of futures contracts taken
> out, has increased ninefold in the reformulated contract since then.
>
> Unleaded gasoline made up 8.72 percent of Goldman's commodity
> index as of June 30, but it is just 2.3 percent now, representing a
> sell-off of more than $6 billion in futures contract weighting.
>
> A sell-off of more than $6 billion in gasoline futures contracts?
> Let's put it this way, a $6 billion trade is not decided on at the
> lower levels of the firm.
>
> Keller provides some insight into the curious timing of this trade:
>
> President George W. Bush nominated Henry M. Paulson, Jr. to be the
> 74th Secretary of the Treasury on June 19, 2006. The United States
> Senate unanimously confirmed Paulson to the position on June 28, 2006
> and he was sworn into office on July 10, 2006. Before coming to
> Treasury, Paulson was Chairman and Chief Executive Officer of Goldman
> Sachs. So what does Goldman do just weeks after Paulson is sworn in as
> Treasury Secretary? It announces a subtle move that drives down
> gasoline prices, short-term. Nice move, coming just months before the
> election.
>
> Now it may be hard to swallow for some that market manipulations go
> on, but they do at all levels. Penny stock promoters cook up their
> schemes, and power players have their schemes. In traders jargon, it's
> called painting the tape. Indeed, the Washington Post has revealed
> that the government has formed something that is casually known as the
> Plunge Protection Team. PPT is supposed to jump in and buy stocks when
> things are unruly. Ronald Reagan formed the PPT when he signed
> Executive Order 12631. It's just another way of painting the tape
> (Using your tax money, or newly printed Federal Reserve dollars, of
> course). Goldman is a member of the secretive PPT.
>
> Etc. here: http://www.lewrockwell.com/orig7/stojan1.html
>

--

Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901 www.michaelperelman.wordpress.com



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