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Urgent message to gold, silver, oil, and commodity traders

Mike "Mish" Shedlock
Jul 21, 2006

This post is for commodity traders as well as people who use the Commitment 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 CFTC (Commodities Futures Trading Commission) has indicated that they may stop publishing the COT (Commitment of Traders) report, pending input from the public by August 20th. Pepe wrote on this a while back and I use and have used this data with great success over the years. In fact, I usually Buzz each Monday and it played a HUGE role in me being out of stocks during the bear of 2000-2002.

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

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, Email: COT report.
The subject line MUST state COT report
The deadline is 8/20/06.

From John Succo:

Bennet's post is ominous for free markets.

I don't think I am over-reacting 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. Their 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 help legislation to reduce lobbyist influence in Washington and it seems he has done the opposite.

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

From Kevin Kerr:

The COT report is a vital tool for the free market trader. I use it everyday when considering trades. It is about the only piece of data the Government puts out that I actually think is useful. So when I found out this information might be taken away happen I was very disappointed, but unfortunately not surprised at all. I find the growing propensity of the US 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 to Congress, the CFTC, NFA and even the President to express my objection to suppression of information.

What would 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 a "commitment of traders" report that discloses the futures position of hedgers (commodity producers or buyers), big specs (hedge funds and mutual funds), small specs (individual traders) as to 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 position to be known. Rest assured the big players will probably know it anyway, and not just once a week either.

At a time when data is easy and cheap to gather we should have more data 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 reflective of positions as of Tuesday. In this electronic age, they probably should come out once a day or at least with a 1 day time lag vs. the current three day lag.

The same hold true and even more so for short reports. Short reports come out once a month. By the time the data does come out, it is quickly outdated and useless. One wonders if the intent is to make the data useless or as useless as possible.

Stacked Deck

Look at how stacked the deck is:

1. Massive Insider back dating 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 happen only after they are totally expected (GM, Ford)
9. Debt rating companies have 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 Bennett 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 by the Commodity Futures Trading Commission.

I had a brief conversation with Kevin Depew at Minyanville about that request. 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 by the CFTC 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 that data once a month as opposed to 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 August 21, 2006, you will lose the opportunity to affect their decision.

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:
Email: COT report. Please reply now, with a subject matter of COT Report.

July 20, 2006
Mike Shedlock / Mish
email: Mish

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