Monday, September 14, 2009

There Will be Blood

Even as the ink dries on the newspapers analyzing President Obama's speech to Wall Street today bulge bracket banks are gearing up to circumvent new regulation. The President was right to tell Wall Street that it cannot resume taking risks without regard to consequences, but he is too late. The resumption of said risk-taking is already off and running. They have jumped back into bond markets, commodities, and derivatives with both feet. The CFTC's imminent clamp-down on oil speculation, arguably the straw that broke the economy's back last year, is already turning banks into oil trading firms. Massive hiring sprees have been reported as BofA, Credit Suisse, Standard Chartered and Deutsche Bank expand their commodities teams globally and plan to start trading spot oil markets. Most of these banks made huge layoffs in the same teams only a year ago when commodities prices went south. My sources tell me that any oil trader worth his or her salt is asking for a three-year minimum salary guarantee before going to work for one of the fly-by-night banks. Because even at $1 million a year (which some reports tout as 'the going rate' for experienced oil traders) they'd be lucky to get a year out of them. The million doesn't go far when you are out of work again for a couple of years. The thought of some of these banks trying to trade physical oil makes me smile, however. The reason Goldman Sachs and Citi and Morgan Stanley have made it in that world is because they bought experienced people and/or companies and stuck with it, year after year. Jumping in when oil and commodities prices rise and out again when they fall is hardly a long-term strategy. Like the title of the film modeled after the excellent Upton Sinclair book "Oil", there will be blood. Meanwhile CME is cracking down on its existing position limits for oil and commodities futures, as I predicted it would (The Wold Report, August 26, 2009). Now for ICE to do the same.

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