Here is what they said according to today’s Wall Street Journal.

“We are deeply concerned that the ongoing work to develop regulations implementing the Dodd-Frank derivatives provisions leaves our energy and oil markets operating without sufficient protections against excessive speculation or its effects,” Sens. Dianne Feinstein (D., Calif.), Olympia Snow (R., Maine), Carl Levin (D., Mich.), Tom Harkin (D., Iowa), and Maria Cantwell (D., Wash.) wrote in a letter dated May 15.

Harkin would also like to put a transaction tax on trading.

Curbing speculation in any commodity won’t work. It will simply force risk transfer and price discovery into less transparent marketplaces. Forcing markets underground into the dark ages will open up opportunities for profiteers to exploit structural information holes between dark markets. Dodd-Frank doesn’t do anything for transparency despite the protestations of its advocates. The only thing Dodd-Frank does is make it easier for the government to demand lots of paperwork from traders the government decides to go after.

What we should be doing is encouraging more information flow. The way to do that is transparent markets. How do we get more transparent markets? By getting more people to trade in them, and that includes speculators. Lots of them. The more, the merrier.

What legislators should be doing is figuring out ways to correct regulation so the private market place can increase the supply of energy. More supply of energy will decrease the price. Hint, it’s not through spending money on solar, wind and algae. It’s through nuclear, natural gas, coal and more crude oil.

UPDATE

Had another thought. One of the reasons that the JP Morgan ($JPM) whale was able to assimilate such a large position was the CDS market he traded in. It is not a transparent market with a lot of players. It’s a dark market with relatively few players. Even though the dollar size of trades is huge, don’t let notional value skew your thinking. The CDS market is one of the more clubby in town. A more open and transparent market would have sniffed it out faster.

How Yahoo($YHOO) killed Flickr and killed the internet.

How to court programmers.

Content can’t be one cup.

Bosinian war crimes trial beginning.

If you think the late night hosts these days are funny, or powerful watch this. Carson was the best.

This is not the way to engender an entrepreneurial ecosystem. Too bad. We won’t have innovation in food like they do in LA, NYC, and SFO.

I saw this on my way home from the airport last night. Don’t understand the motivation.

They talk a good game as long as dissenters aren’t allowed to talk.

Many of the NATO protestors and Occupy Wall Street crowd are communists, or at least communist sympathizers. It’s helpful to remember what communism was really like.

JP Morgan’s loss offers lessons and questions.

ArborVita

Brain Wave

Edit Huddle

Energy Intelligence

Fricket

Greenbook

Living Closet

Prime Link Health

Site Diagnostics

Zip Fit

Athletify Me

Remember, these are start ups. They should solve a pain point, have a big market, and a great scalable easy to use solution.

F data by YCharts

The corporate cultures of the two companies are very different. One example. GM pulled its ads from Facebook. Ford is doing more with Facebook. Another, GM bailed out by the government, Ford weathered the storm.

The social media strategy of each company is extremely interesting. GM is going to go the traditional route. Ford has embraced the tools of social media to connect with its customers. I think that gives Ford a competitive edge.

Allan Schoenberg gave a great speech at the University of Chicago Booth Marketing roundtable on social media. He spoke about how corporations should be using it to their advantage. If you read the book Groundswell, there are ten case studies in how to use the different platforms to benefit your business. Allen cited Ford as the number one corporation using social media today. They use it to benefit the brand, the company and their customers.

Ford understands the new world, GM doesn’t. But that’s not surprising given the different cultures. My prediction is GM is going to try and dictate where it wants the customer to go, Ford will listen to its customers and build cars to suit their demands.

No one is an expert on social media. It’s simply too new to be an expert. Things are changing rapidly. Who saw Pinterest three years ago? Instagram? Some people and companies are more adept than others at utilizing it. Here are the two feeds from GM and Ford on Twitter, notice a difference? I do. One person even tweeted this:

@aimee_ellard @Ford one of the only companies that I have seen really use timeline well to tell ‘their’ story

Ford is using Twitter to drive customer engagement.

GM’s feed looks like a complaint department. Then they even tweeted this.

@idtuner Unfortunately we do not discuss future product here, nor do we have any info to share on this at the moment. cc @GMCanada ^MS

I can understand not wanting to give away a secret. But, I would have engaged this customer differently. Instead, GM shut them down. I am sure Ford will be happy to engage them.

On Facebook, Ford has 1.5 million fans. GM, 378k. Ford is using Facebook as an effective tool to not only communicate, but to listen to their customers. No wonder their Facebook ad campaign is much more successful than GM’s.

Social media is not the be all end all that will determine success or failure. But it offers a clue into the culture of the company and how they view the world. Big monolithic corporations can dominate simply because they are big. However, to truly excel and protect themselves from upstart competitors, correct use of social media can be a big part of instilling a more customer focused culture in the company.

Guard your equity in moves like this. You’ll be glad you did.

May is Jewish Heritage Month. Here is a great story.

Read this story about The Chicago Way. You won’t believe it.

Okay, I at heart I am a geek. This is a neat opportunity to learn. And capitalists, we know you make more money when you have more information!

The Great Plains are getting feisty. Will love to see how this goes down. Wyoming, Texas and North Dakota have 0% income tax. Oklahoma, Kansas, Nebraska, South Dakota all under pressure. They are Republican controlled states. Would love to see them walk the walk, not talk the talk and really slash the sizes of their governments.

The US should privatize the postal service. It’s not an original idea, but it’s a good one.

Voter fraud in North Carolina. Can’t we just have an id requirement to vote? I have to show id for just about everything else. Would stop a lot of the fraud. Democrats are against it, saying that it’s a right guaranteed by the Constitution, but really thinking that it will make it a lot harder to steal elections. Ironic that they wrap themselves in the Constitution on this issue, and shred it on others.

Bank runs in Greece. Coming next to places like Italy.

Do you ever get the munchies?

Mobile payments are hot.

Does ethanol lower the price of gasoline, or not?

The Sherman Tank

They were trying to get greater returns with free money provided by the Federal Reserve window.

Of course, the big government fanatics are out in the media pounding their chests that we need more regulation. I thought we had great new regs with Dodd-Frank, and prior to that we made CEO’s and CFO’s responsible with Sarbanes-Oxley.

Maybe what we need is less regulation and flatter, transparent and more horizontal markets.

So what, JPM made a bad trade. Happens in the trading business. At least they have the money to stay in business, unlike Bear, Lehman, MF, Merrill….. The answer to all of these situations isn’t more regulations. It’s not a crime to lose money. The answer is to ask yourself how did one trader amass a huge position?

This isn’t the first time in history a big institution, or a powerful institution lost money. LCTM lost a bunch in 1998, and destabilized the world market for a short time. Barings went broke when a trader went big. China lost a boatload in London trading copper a couple of years ago. But because of our response to the financial crisis in 2008, we have created institutions that are too big to fail. Because of their size, they have a hard time staying on top of risk. That’s one of the core reasons we should have let them go broke in 2008. Going broke makes traders take responsibility for the risk they take. It’s a necessary outcome. Bandaging it over with Federal Reserve paper takes risk out of the marketplace.

There are many reasons our markets are broken today. A primary one is the regulatory environment hasn’t kept pace with the sweeping changes that have been made to them. Because institutions, and people react the same to economic incentives, when markets changed, the entities with the wherewithal to protect themselves did so. They went to government and created favorable regulations. They bought up competitors and created dark pools where they could dominate. They put up structural and regulatory barriers to entry to keep the game behind closed doors. Instead of inviting lots of people, institutions and entities to the market bazaar, the rules of the game today lock them out or charge them juice to play.

Ironically, some of the most messed up industries in the US also happen to be the most heavily regulated. Education, Health Care, Energy, Housing, and Finance. The common theme among them is government bureaucrats try to set the rules of the game. That leads to severe imbalances that manifest themselves as dead weight loss in the economy, and harms shareholders of companies in the long run.

The lesson we ought to be focusing on with regards to the losses at JPM and MF isn’t that we don’t have enough regulation. We have plenty, too much actually. We should instead focus the laser on the structure of the marketplace and think about how one trader was able to amass such a position. But, most of the bureaucrats regulating the market place are loathe to pull back that curtain-or just don’t understand enough about it to open up the ticket booth.

UPDATE

I have no hard evidence, but as Jack B commented on my FB page, I wonder if JPM didn’t buy the MF debt portfolio at a deep discount and had The Whale hedge it. When the European market began to unravel again, the trade went underwater.

It’s not as if traders don’t purchase large scale positions from other traders. It happens all the time. Lehman was able to unload their portfolio in 2008 at a discount to other traders.

Why do they do this? In most cases, the opportunity cost of their exposure is greater than the cash that they will receive to dump the portfolio. So, in bankruptcy dumping it is cost efficient.

I am against the use of drones in US skies. In the case of a war on our soil, I would be for their use. In the case of patrolling the border between Mexico and the US, I am for their use. But for a city police department to use them, forget it.

Do you think Wrigley needs to be destroyed?

Don’t miss this. July 14. New Orleans. Winston Churchill Symposium. Tickets sell out real fast.

No time to work out. Here is a way to do it in twenty minutes. I lost thirty pounds last year working out at CityWideSuperSlow in Chicago. 30 minutes a week.

Here is what’s holding the economy back. Plucking model.

Great blog comment.

I was at this store yesterday. Best hat store in the US for sure. Here are some shots from the inside of the shop. I was getting my Panama hat cleaned. What do you think of this one?

Worst part of the JP Morgan ($JPM) deal, the regulators want to regulate. Interesting observation from someone I respect greatly. Dimon had to lie because it was in the best interest of his shareholders for him to hide the truth. It gave JP a bit of time to unwind the trade-which I am sure they are still unwinding. Next step, lawsuits.

How to make a Manhattan(use Rye Whiskey, not bourbon.)

Groupon ($GRPN) reported better than expected earnings yesterday.

The community organizers are about to invade Chicago. Can’t wait. Guns are loaded.

We have had a great thirty years. People that buy gold aren’t optimists.

Here are my points.

1.
2.
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Actually, you can’t attack Obama because he never was in the private sector. He never did anything of note before he was President. I call that a government bureaucrat or hack. My kids have contributed more to GDP already in their young lives than Obama has done in his.

But, if we look at some of the economic data from the last four years, we can discuss Obama’s record.

1. First time the US ever defaulted downgraded from AAA on debt.
2. Largest budget deficit in history
3. Largest increase in government spending ever
4. Highest prolonged unemployment ever since the Great Depression
5. Lowest percentage of people in the work force ever.
6. Most anemic GDP in a “recovery” ever.
7. Trampled on investors rights in government takeover of industries.
8. If re-elected, the highest tax increase in American history.

US Unemployment Rate data by YCharts

Discuss. Let’s make a change in November.

Thanks for the link Instapundit.

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Instead of taking delivery, they are cash settled. They have longer trading hours. But this isn’t a competition of open outcry v electronic trading since the CME already trades grains($ZC_F, $YC_F, $ZW_F, $YW_F, $ZO_F, $ZR_F) on the screen. Initially, margins are lower on the ICE, but that is risky on ICE’s part. An adverse move in the market could put some stress on the clearinghouse if traders couldn’t come up with margin money.

Plenty of exchanges have tried to steal contracts before. Usually, it’s been in treasury contracts which have never moved. The list of contenders for them is long. But, the CME hangs on to the lion’s share of volume. One reason is lower all in trading costs. But the other is structural. Networks built over time are hard to break. The grain network funneling into CME has been there since 1849. It is hard for me to believe that the ICE foray into grains will be anything more than an arbitrage opportunity for traders.

However, if an exchange screws up, and sometimes they do, ICE could benefit. The differentiation ICE has brought to the table isn’t necessarily being heralded as innovative by traders. Longer hours in agricultural contracts don’t mean better liquidity or risk management. Because contracts will be open during crucial crop reports, it could adversely affect the market. Only time will tell.

If we look at the stock prices of the two firms, Mr. Market is telling a story. ICE has outperformed CME in the past five years.

ICE data by YCharts

Past year

ICE data by YCharts

and year to date

ICE data by YCharts

I wouldn’t say ICE has out innovated CME. Neither has been particularly innovative. But they have kept their internal costs under control better and they have been the beneficiary of a switch from West Texas Intermediate Crude ($CL_F) to Brent Crude as the dominant oil trade. That sentiment may or may not continue. Markets are fickle.

Since ICE stole the Russell ($TF_F) from CME, it hasn’t been able to build volume any quicker than other equity products on the market. In fact, Russell would have been better off at CME because of the cross margining with the other equity contracts ($ES_F) traded there.

For the trader that is entering the market, they are more devoted to their front end provider than any particular exchange. CME and ICE both used to have a cadre of very loyal traders that would respond to incentives. Those former members of the CME, CBOT, NYMEX and NYBOT don’t feel the same exchange affinity or identity that they had in the past. Exchange management squandered the esprit de corps that used to exist in the industry. With the right incentives, it could be rekindled. But neither exchanges management team is interested in doing that right now.

The other drag on CME stock is it is heavily tied to interest rate volatility. With the Federal Reserve seemingly on hold until Armageddon, volatility in interest rates ($ZF_F, $ZT_F, $ZQ_F, $ZB_F, $ZN_F, $GE_F) isn’t returning any time soon. When it does CME volume ought to explode.

I’ll watch the grain competition with interest. My bet is CME keeps the grains. The only question in my mind is when does CME retaliate on the softs ($CJ_F, $CC_F, $TT_F, $CT_F, $KT_F, $KC_F, $YO_F, $SB_F, $OJ_F)-and how do they do it?