Urgent Message to Gold, Silver, Oil, and Commodity Traders

This post is for commodity traders as well as people who use the Commitments of Traders (COT) reports for other uses. Even if you do not trade commodities or use the COT reports, you may find this post interesting, so please read on.

The first message is by Minyanville professor Bennet Sedacca. The second post is by Minyanville professor John Succo. Kevin Kerr has a few comments for everyone, as do I. Here goes.

From Bennet Sedacca:

The Commodities Futures Trading Commission has indicated that it may stop publishing the COT (Commitment of Traders) report, pending input from the public by Aug. 21. Pepe wrote on this a while back, and I use, and have used, these data with great success over the years. In fact, I usually buzz each Monday, and it played a HUGE role in my being out of stocks during the bear of 2000-2002.

They have already gotten rid of M3, one of the other most important data that we use as traders and investors (both individual and institutional).

Do I still live in America? Why must we be kept in the dark? So they can make a bigger mess without us knowing, I suspect — I hate being that cynical, but it sure feels that way. Maybe they should take my Bloomberg away, and my Treasury quotes, turn off the lights, and have me GUESS what to pay?

Anyway, if you care about this, e-mail COT report. The subject line MUST state, “COT reports.” The deadline is Aug. 21, 2006.

From John Succ

Bennet’s post is ominous for free markets.

I don’t think I am overreacting when I say that I see all around an effort, conscious or not, to curb information by a government who creates the information. This is symptomatic of what I have called the “socialization” of markets. If I had my way, government would be so small that it wouldn’t matter.

Government intervention/manipulation of markets has gotten the U.S. to where it is today: up to our eyeballs in debt, a middle class struggling to stay solvent, and industry less competitive than ever. Its solution is more intervention.

Government gets to the point where “it” believes it knows best and the people need to be led; this feeds on itself and attracts participants who are mostly interested in power.

Just look at our politicians. If I were a con artist, there could be no better con than being a congressman. They just stall the people and pay their benefactors. There is a great article in the Cincinnati paper about Congressman John Boehner of Ohio, the new House majority leader. He was supposed to aid legislation to reduce lobbyist influence in Washington, and it seems he has done the opposite.

This has huge implications for our country and what made it great. Everyone should reread The Fountainhead by Ayn Rand. Her philosophy, in a pure sense, may be over the top, but she has some great lessons in it and one can certainly see some parallels to our world today.

From Kevin Kerr:

The COT report is a vital tool for the free market trader. I use it every day when considering trades. It is about the only data the government puts out that I actually think is useful. So when I found out this information might be taken away, I was very disappointed — but, unfortunately, not surprised at all. I find the growing propensity of the U.S. government to walk all over freedom of information appalling.

By hiding key market info like the COT report, the marketplace is no longer level and free market integrity is deeply in question. I, for one, plan to write Congress, the CFTC, the National Futures Association, and even the president to express my objection to suppression of information.

What could be the purpose for not publishing this information? We all know the real answer, but the question is what will they say? If we want to have our free market system, then we must fight for it.

Kevin Kerr, Lifelong Commodities Trader
Editor, Resource Trader Alert (RTA) newsletter

From Mish:

For those that have not heard the term “COT report,” it is the Commitments of Traders report, which discloses the futures position of hedgers (commodity producers or buyers), big specs (hedge and mutual funds), and small specs (individual traders), and whether or not they are short or long and by how much they are short or long. That statement alone should be enough to tell you that certain players may not want their positions to be known. Rest assured that the big players will probably know it anyway, and not just once a week, either.

At a time when data are easy and cheap to gather, we should have more, not less, data. It seems the SEC, the CFTC, the Fed, and various other government agencies are acting to restrict the flow of information. Many people are upset about the cancellation of M3 reporting and fear the same will happen to COT data.

COT reports come out on Friday and are reflective of positions as of Tuesday. In this electronic age, they probably should come out once a day, or at least with a one-day time lag.

The same holds even more for short reports. Short reports come out once a month. By the time the data do come out, they are quickly outdated and useless. One wonders if the intent is to make the data as useless as possible.

Stacked Deck

Look at how stacked the deck is:

1. Massive insider backdating of options
2. Massive insider selling of stocks while buying back shares for the public to meet EPS requirements
3. Three-day delays in COT reports (reports that insiders do not want the public to see at all)
4. Elimination of M3 reporting
5. Short interest stats that come out so infrequently as to be useless
6. Upgrades at the top and downgrades at the bottom
7. Upgrades and downgrades after mutual funds have bought in or sold
8. Debt-rating changes happening only after they are totally expected (GM, Ford)
9. Debt-rating companies having side business relationships with companies they rate
10. Upgrades and downgrades of stocks during options expiration week and other less liquid times for maximum effect

I am sure there are additional “stacked deck” examples. Those came to mind in about two minutes flat. Elimination of the COT report would be another attempt to further stack the deck.

John Succo and Bennet Sedacca are two of the brightest minds I know. I would also like to add a couple of other Minyanville professors to that list: Scott Reamer and Kevin Depew. Kevin Kerr is one of the best commodity traders there is. If these guys are all upset about something, then I know two things:

1. I should be paying attention.
2. You should be paying attention.

Here is the original “Request for comments” from the Commodity Futures Trading Commission.

I had a brief conversation with Kevin Depew about it. Depew points out the possibility that we may be overreacting a bit. The reason that everyone is jumpy is the elimination of M3 reporting by the Fed and that this request for comments may be a valid attempt to improve our access to data. On the other hand, it is possible that this comment period is nothing more than an attempt by the CFTC to eliminate the COT reports or reduce their usefulness by reporting the data once a month, instead of once a week.

The point is we do not know what the intent is, so it is hard to say if we are overreacting or underreacting at this point. What we do know is that unless you speak your mind by Aug. 21, 2006, you will lose the opportunity to affect this decision.

Mike Shedlock / Mish
Editor, The Survival Report
Blog, Mish’s Global Economic Trend Analysis

On behalf of everyone mentioned above, we ask you to flood the CFTC with comments asking for more timely reporting of COT data, not the elimination of it.

Please click on the following link and make yourself heard: COT report. Please reply now, with a subject line reading, “COT reports.”

Mike Shedlock ~ “Mish”
July 20, 2006