Monday, October 02, 2006

And right on schedule for the Democrats...

...fresh from Foley's they chime in about regulating the financial markets due to Amaranth...

Historically, the buying and selling of natural gas takes place on the highly regulated New York Mercantile Exchange.

But in 2000, several major energy companies including Enron Corp. pushed for and won the passage of the Commodity Futures Modernization Act, which allowed certain commodities to be traded on unregulated electronic markets.

Favored by investment banks, hedge funds and other market speculators, these so-called over-the-counter trades were exempt from oversight by federal regulators such as the Commodity Futures Trading Commission (CFTC). Some energy analysts also see the trades as a reason for some of the wild price swings of natural gas in recent years.

U.S. Sen. Carl Levin, D-Mich., wants to stop the practice and introduce regulation to the over-the-counter trades.

Levin, cosponsor of the Oil and Gas Traders Oversight Act (SB 2642), wants to require that U.S. energy traders keep records and report large transactions to the CFTC.

"The bill will require that the large trades must now be disclosed to the regulator, whether the trade occurs on the NYMEX or electronically," Levin said. "With this bill, we'll have a cop on the beat in a free market that can prevent excessive speculation.

Sunday, October 01, 2006

The wonderful to and fro...

...of the markets, with its mandate to equalize buyers and sellers and its function of bringing goods (both financial and physical) to the present or transporting their worth to the future, has been somthing else as of late.

We see all the usual suspects displaying their gleaming new theories, such as "we are now 10 years without a major crash" or some such argument. But if one looks under the hood of their offers, one finds that none of the marketing peices (which doubtlessly reflect not only their objective opinion, but also their present position in the markets) ever test for randmoness. Testing in this fashion is essential for one to avoid the common errors in thought that overestimate probabilities based on an interesting fact or two. So the Recapitulator asks all to test, among other things, what is guaranteed to happen in a system that has 20% volatility with 10% upward drift.

Carl Sagan once said "extraordinary claims require extraordinary proof". This is not to dissuade anyone from being bearish during the present and tumultuous times in the market, it is merely a plea not to fall prey to hap-hazard and piecemeal backtesting of financial figures to fit an explanation that one has concluded ex ante to the data gathering.