The bears have been taking a beating and U.S. stock indexes have been charging ahead since the 800+ point correction in the Dow beginning with the 416 point drop on Feb. 27, reversed.

While the markets of the late 1990s, dubbed by Fed Chairman Alan Greenspan as displaying irrational exuberance, were somewhat understandable given the long period of time since anyone saw a bear market, the pain of the 2000-02 bear market should be relatively fresh in investors’ minds.

The bulls may argue that warning of an overheated market were prevalent throughout the 1990s and those that got out or got short too soon suffered just as much as those who jumped on the bandwagon near the top.That being said, there are some interesting and perhaps chilling similarities to the current market and past blow-off tops.

Futures contributor Garrett Jones has pointed out in the past that the four-year cycle low due in 2006 has not occurred (if you don’t count the July 2006 low). That was also the case in 1986, with the cycle low coming with a vengeance in 1987. In the upcoming June Futures Market Strategy article, Jones points out that the Dow Jones Industrial Average Index set a dubious record on April 27. It posted 19 of 21 up days. The second time in history that has occurred. The first time was in 1929, two months before the crash. In both cases the market held the 19 of 21 up day mark for a series of days. In 1968, a few moths prior to that downturn, the market set a similar mark with 18 of 21 up days. (by Daniel P. Collins)

Despite the enormously successful efforts to clear up Nascar’s image, you just can’t deny that the sports roots are steeped in corn liquor, as the early drivers like Wendell Oliver Scott and Ralph Earnhardt got their start running bootleg liquor across state lines in the prohibition days, testing the limits of their driving skills against each other and the police.

Now Indy racing is going back to its roots, but in a far more politically correct way. They call it the greening of racing, and they don’t call it corn liquor anymore. They call it ethanol.
Anyway, a decent size clutch of people gathered beside the Chicago Board of Trade this morning to see Indy race car driver Jeff Simmons, his 100 percent fuel-grade ethanol car and to hear about IndyCar’s transition to 100% fuel-grade ethanol in 2007. CBOT Chairman Charlie Carey was behind the podium supporting the ethanol fuel, especially as the CBOT is home to corn and ethanol futures.

“Two weeks ago, we were behind as far as putting the crops in the ground,” says Brian Cullen, a senior market analyst at New World Trading. Now, just weeks after the publication of the USDA’s planting intentions report, which indicated a total of 90.76 million acres of corn would go into the ground this spring, up 12 million acres from last year, only 78% of that is planted, roughly equivalent to the five-year average.

Not getting crops in the ground, and not getting rain, through the middle of May has made the market more volatile. July Corn futures ,which were as high as $3.96 per bushel on May 3, were as low as $3.54 per bushel a week later.

“And now we have another scarcity of rain,” Cullen says. “Even though we have the crops in the ground, without rain, they are not going to do anything.” He notes that to date, only 39% of the crop has emerged, only slightly higher than the five-year average of 36%. That could put pressure on supplies, driving corn futures up, especially with driving season upon us.

The question is, he says, is whether farmers will now scrap the crop in favor of soybeans, and if so, how big an affect it will have on the markets.

The battle between the Intercontinental Exchange and Chicago Mercantile Exchange over the Chicago Board of Trade took an interesting twist on Monday when ICE inked an exclusive agreement with Russell Investment Group parent of the Russell family of indexes.

The decision reverses Russell’s strategy of licensing its indexes to multiple exchanges and letting them fight over liquidity. Kelly Haughton, strategic director for Russell Indexes, says he believes this is a better way to go.

One year ago today (July 18, 2006) the Dow Jones Industrial Average made a six-month low of 10,683.32. The date was significant because it launched one of the most impressive runs in the Dow’s history. The Dow set off on an impressive upward move with nary a correction until February 27 of this year when it dropped more than 400 points. That drop turned out to be a small blip as the Dow has since recovered and continued its upward march. The July 18 turn was relatively predictable as the Dow failed to take out the Jan. 20, 2006 low of 10,661, then rallied more than 100 points from the intra-day low to close at 10,799.23.

Yesterday, the last day of the yearly cycle beginning on July 18, 2006, the Dow surpassed 14,000 for the first time in history, meaning it gained more than 3,200 points in a 12-month time span.

No wonder there are people asking, ‘can this continue?’

One analyst who has his doubts is Garrett Jones. Jones sent out an alert to his customers and Futures' Web readers regarding a possible turn. Jones, a technical analyst who specializes in market cycles, wrote, “My view is that the market is set to turn right away. With the date this Thursday (July 19), I am prepared for the market to reverse any time this week.”

He has written in Futures about the four-year president cycle that normally produces a low. That cycle was due in 2006, but a significant drawback never occurred. This anomaly occurred as well in 1986 only for a much more severe downturn to occur in 1987. Jones points out several similarities between 1987 and 2007 as well as the tendency for the market to experience its worst performance in years ending in the numeral 7. Coincidence? Maybe, but technical analysis has to do with the study of price movements.

Jones points out several other indicators of a possible major move including the obscure “Hindenburg omen”, which is believed to accurately signal a downward move.

While there are always market bears and the market has proven resilient in the face of both technical and fundamental signs of weakness, we are hearing from quite a few people regarding a major shift.

There are surely as many bulls though, and the problem of course is timing. Analysts were warning of an overheated market in the mid 1990s. They were right, of course, but most people following their advice lost money as the market continued to move higher until March of 2000. Perhaps the anecdote of traders balancing fear and greed is best exemplified during a possible blow-off top. The last move is often the most significant, making predicting a top a risky venture.

The best advice, as always, is to be diversified and manage your risk.

Crude oil prices today traded as high as $78.10 per barel, setting a one-year high.

In an unrelated story, the New York Mercantile Exchange announced second quarter earnings.
As per Nymex:
- Second Quarter Operating Revenues Rise 34% to $163.6 Million
- First Half Operating Revenues Increase 40% to Record $327.8 Million
- Takes One-Time Charge of $26.0 Million Related to Optionable Investment
- Diluted EPS of $0.44; Excluding One-Time, Pretax Charge, Diluted EPS of $0.60

To anyone following energy market analysis in recent years it is not a shock that high profile Alaron energy analyst Phil Flynn is bullish the complex. In a commodity market panel sponsored by Dow Jones Indexes and AIG Financial Products on Tuesday, Flynn gave his assessment on the energy complex and explained why the explosive rise in energy prices was not a bad thing as it signaled global economic growth.

While perhaps a tough pill to swallow, Flynn’s analysis makes sense and has been born out as rising energy prices has not sent the economy into a tailspin as some have feared.

To anyone following energy market analysis in recent years it is not a shock that high profile Alaron energy analyst Phil Flynn is bullish the complex. In a commodity market panel sponsored by Dow Jones Indexes and AIG Financial Products on Tuesday, Flynn gave his assessment on the energy complex and explained why the explosive rise in energy prices was not a bad thing as it signaled global economic growth.

While perhaps a tough pill to swallow, Flynn’s analysis makes sense and has been born out as rising energy prices has not sent the economy into a tailspin as some have feared.

The New York Mercantile Exchange has launched two new ethanol swaps contracts to compete with ethanol swaps on ChemConnect, which was recently acquired by the Intercontinental Exchange (ICE) and CME Group's ethanol futures and cash settled ethanol swaps, which it recently acquired by purchasing the Chicago Board of Trade (CBOT).

"It's going to be interesting to see if there is enough interest to become viable contracts. I expect them to be more of a slow burn," says Rick L. Kment, ethanol and biofuels analyst for DTN. "The thing that has made RBOB and crude oil so successful is not commercial traders, while they are an important part of it. It's really the investment and the non-commercial trader that takes that offsetting position; and especially with swap contracts, that kind of limits itself to being commercially driven."

Jurgens Bauer, a cotton trader at the New York Board of Trade – a regulated subsidiary of the Intercontinental Exchange (ICE) – is reporting that cotton prices went limit down today, and that the ICE trading platform (which lists Nybot's contracts) went down with it.

“The only thing in the building that was going up today was the elevator. Even the escalator was broken on the second floor,” he wrote in an e-mail. More importantly, he writes that a serious flaw was exposed in ICE electronic trading platform: once cotton was offered at the limit, Web ICE shut down as a result.

“What happened was that trades on ICE continued to take place below limit. It was announced that any transactions that took place below limit would be nullified and canceled. This not only impacted out-right transactions, but also spreads in which one leg, or both, used inappropriate price levels. This created a nightmare for some, as they didn't know their position. But worst of all, following the announcement trades below the limit continued to occur.”

More as the story develops.

The news that Citadel Investment Group, a $14 billion hedge fund, had purchased $500 million of Sentinel Management Group's distressed portfolio didn't bring the joy the firm perhaps thought it would. Penson GHCO, a futures commission merchant, has demanded that the sale be reversed due to the loss Sentinel clients, thus Penson, would take. "Should the sale not be reversed," a Penson press released stated, "based on what we currently know, we anticipate incurring a potential one-time after-tax loss of approximately $6.5 million on the Sentinel Investment."

The dog days of summer used to be synonymous with slow markets where traders and clerks could take time off or cut out early assured that there was not much activity to miss. And while not as laid back as Europe, where some industry personnel where know to take the entire month off, the month of August usually coincided with quiet range-bound markets.

Not this year as the subprime crisis coupled with other market fundamentals have produced volatile markets and numerous volume records. The Chicago Board Options Exchange reported that this August was the busiest month in its 34-year history with 105,551,741 million contracts traded; a 94% increase over last August and 21% increase over July’s record pace. It was the first time ever that CBOE traded more than 100 million contracts in a month. The entire equity options industry also set a record in August of 294,211,443 contracts, up 83% year on year.

The record volume was not contained to equity options as CME Group also reported record trading volume in interest rate and equity index products. Average daily volume at CME Group for August was 14.9 million, up 78% fro August 2006.

The Chicago Mercantile Exchange (CME Group) is protecting its turf when it comes to trading currencies as other exchanges amp up their currency offerings — both the Philadelphia Board of Trade (PBOT) and the Tokyo Financial Exchange (TFX) came out with currency news at the end of August.

The CME Group, which is a regulated marketplace for foreign exchange trading, announced it plans to offer electronic trading for weekly forex options on futures with American-style expiration. As of Sept. 10, the weekly options on the following currencies will be available virtually 24 hours a day on the CME Globex electronic trading platform: the Euro, the Japanese yen, the British pound, the Swiss franc, the Canadian dollar and the Australian dollar.

The Boston Stock Exchange (BSE), a mutual organization that manages or regulates multiple ventures, announced Sept. 5 that it has discontinued the operations of the Boston Equities Exchange (BEX).

BEX was launched in August 2005 as an electronic stock exchange but failed to gain market share, according to BSE. BEX did not see significant gains during a summer of record trading volume.

The BSE will continue to be active in the marketplace and will support its remaining ventures including the regulation of the Boston Options Exchange (BOX).

At a cocktail party and dinner buffet at the National Italian American Sports Hall of Fame in Chicago's Little Italy neighborhood, the Philadelphia Board of Trade (PBOT), which is under the auspices of the Philadelphia Stock Exchange (PHLX), celebrated its products. It was a gorgeous Chicago evening, and the view from the terrace of the Hall of Fame was spectacular.

But in between hearing about the quick growth of the PHLX World Currency Options that hit records that day (open interest hit 239,903), and talk about about its smaller sister, the retail-oriented FX futures at the PBOT, which recently named IKON Global Markets as a market maker and Fortis Clearing Americas as the first clearing member, a few former bond floor brokers lamented the death of the floor. When asked what has changed, other than their move to management at prospective banks, they said market moves have "extended," because "there's no one to stand in front of the hedge funds." They said that it wasn't that trends were changing, it's just that a market could move 10% more in one direction just because it had to slow down pretty much by itself, like a train with no brakes. They added that hedge funds move all in the same direction. And with the move to electronic, they didn't see that change anytime soon.

The Chicago Board Options Exchange (CBOE) and the Dow Jones Indexes co-hosted a Symposium on the 1987 Stock Market Crash at the CBOE this morning, marking the upcoming 20 year anniversary of the ’87 Crash.

The panel was comprised of market experts representing the views of trading, clearing, exchanges and market analysis, all of whom played key roles in the 1987 markets, including William J. Brodsky, chairman and chief executive officer of CBOE, who was president and chief executive officer of the Chicago Mercantile Exchange (CME) at the time of the crash.

On Monday, Oct. 19, Black Monday, the stock market crashed. That day the DOW plunged 508 points, 22.6%, and traders were filled with panic.

But it got worse on Tuesday when the stock market plunged at the open. Trading at the New York Stock Exchange was halted, the CBOE halted trading at 11:45 (CST) and the CME halted trading about a half-hour after that.

Up until crude oil hit $90 per barrel, ethanol had seen some hard times, trading down to around $1.50 per gallon, which is near or below the break-even point for producers.

The issue has largely been one of over supply. The U.S. government has mandated very aggressive goals for ethanol production, including a subsidy of more than 51¢ per gallon to fuel producers who mix ethanol with gasoline. And producers responded strongly, there are projections that 2012 production goals will be met in 2008; but that over supply has hit producers where it hurts: in the profit margin. For example, On Monday, the Denver Post reported that Denver based Bio Fuel Energy Corp. has delayed plans to build more ethanol plants until prices come up.

Mixed government inventory reports caused a drop in energy futures Wednesday, and an announcement by the Organization of Petroleum Exporting Countries (OPEC) did little to change the situation. OPEC decided to leave production levels steady at its meeting in Abu Dhabi, but investors shrugged off OPEC's decision, according to the Associated Press. The Energy Department’s Energy Information Administration (EIA) reported a larger than expected decline in crude supplies and increases in heating oil and gasoline inventories.

“OPEC’s not adding production in the market was expected,” Eric Wittenauer, energy analyst at AG Edwards, says. He called the market oversold in the near term and said he remains bearish on the market overall.

According to the Associated Press, light, sweet crude for January delivery fell 83 cents to settle at $87.49 a barrel on the New York Mercantile Exchange, oil's lowest close since Oct. 24. Prices drifted lower in after-hours trading, dipping below $87, the AP said.

The Commodity Futures Trading Commission (CFTC)’s reauthorization dance continues with the Senate approval of the CFTC Reauthorization Act of 2007. We've seen this all before, though, as the CFTC has been in regulatory limbo for a few years, with various reauthorization moves passed by lawmakers always stalling somewhere along the way. The New York Mercantile Exchange (Nymex) for its part voiced approval for the latest reauthorization act, especially as it pertains to energy markets. Nymex CEO James Newsome said in a press statement that Nymex “strongly supports the approach the Senate has taken on oversight of the energy markets. We believe this legislation would…implement reform in a focused and thoughtful manner.”

In late December, a consortium of 12 financial institutions announced plans to launch a new electronic futures exchange, and apparently CME Group is not taking this challenge lying down. Yesterday, CME announced product enhancements aimed at creating “a more liquid, efficient and competitive marketplace,” according to a statement. CME will begin allowing block trading, expected to begin Feb. 4 and subject to CFTC approval, for certain CBOT interest rate products. CME also plans to reduce the minimum tick size for the 30-year U.S. Treasury bond futures contract and both the 5-year U.S. Treasury note futures and options on futures. So what’s the first product expected to be launched by the new exchange? You guessed it: U.S. Treasury futures.

For more on the new futures exchange, check out the February issue of Futures magazine.

Yesterday we asked why had the markets turned so violently against U.S. futures exchanges (see “The bloom is off the rose”) as the CME Group, New York Mercantile Exchange (Nymex) and Intercontinental Exchange (ICE)had all lost more than 20% in recent weeks. They all rebounded somewhat today even as the broad indexes continued to drop but the bear market has prompted one exchange leader to change his plans.

That the Federal Reserve Bank lowered the Fed funds and discount window rates this morning is old news; but now UBS has officially changed its outlook today and is predicting a U.S. recession.

“The ball started rolling with the recession-like rise in unemployment in December,” says Jim O’Sullivan, UBS chief U.S. economist, adding that last month’s decline in the CEO confidence index, combined with a slipping stock market and weak jobs report have tipped the balance. “It’s just the sense that businesses and consumers are getting more cautious. And the down turn in housing is starting to feed on itself,” he says, adding that he anticipates recovery in the second half of 2008.

Société Générale bosses now say they know how accused rogue trader Jérôme Kerviel managed to hide what they now say was a position with a notional value of more than $70 billion: he simply balanced his futures positions against fake forward positions, they say. It worked, they claim, because forwards don’t require margin money be posted to an exchange. This meant that Kerviel (who surrendered himself to police on Saturday and remains in custody Monday morning) could incur margin calls on Eurex and Euronext, and the bank would pay them, because his books showed the positions balanced in forwards... which don't require margin calls?

Huh???

SocGen is a leading provider of retail-oriented forward products, such as certificates and contracts for difference, and the implication is that Kerviel balanced his myriad long futures positions with hundreds of small fake forward positions -- possibly listed as belonging to retail clients. But such forwards ARE subject to margin, albeit from the customer, who should have put it on deposit at SocGen itself.

That means that even before the positions turned against Kerviel, the bank would have had a mismatch between margin paid out to hold the futures positions and margin taken in to cover the forward positions -- or at least margin on deposit to cover futures and margin on deposit to cover short forwards.

Here is a view on the Societe General rogue trader debacle from our French correspondent Irene Frat.

Many questions – and a few answers

Why did he do it?
You would think it was for the money that Jérôme Kerviel took highly risky positions at Société Générale. Though he was eager to get a big bonus –he was hoping for 300 000 euros, not a paltry sum for a trader who made less than 100,000 euros a year in fixed salary, he did not siphon the money he could have made on the markets at one point.
Why ? The explanation lies in his personal psychology. Kerviel seems more addicted to the trading game than to making money. Explanations concerning his behavior also can be found in France’s general attitude towards social classes. “I was aware, starting from my first meeting in 2005, that I was less well-considered than the others [regarding] my university degree and my professional and personal background. I had not come directly to the front office, but had passed through the middle office, and I was the only [trader] to have done that,” Kerviel reportedly told investigators.

Coming from a provincial, lower middle class background, Kerviel did manage to get a university degree. But not the “right” one.

CME Group CEO Craig Donohue provided a spirited defense of the CME clearing model that was recently questioned in a Department of Justice comment letter during a luncheon speech at the Managed Funds Association conference in Key Biscayne, Fla. Donohue called the comment letter "an ill-timed and ill-conceived suggestion," and also pointed out that half of the positions of rogue trader Jerome Kerviel's SocGen trades which resulted in the $7.2 billion loss were not subject to central party clearing and suggested that that helped make the fraud possible. Donohue said "the futures markets are a shining example of what could be right" with the clearing structure. John Damgard, president of the Futures Industry Association (FIA), who was also in attendance during the speech, said he thought it was surprising that Donohue would take aim at the investment banks, who are his biggest customers and substantial owners of the merc. submitted by Dan Collins

At long last, the new futures exchange has a name: ELX Electronic Liquidity Exchange. The name was announced yesterday at the Futures Industry Association’s conference in Boca Raton, Fla. The exchange, formed by a consortium of 12 financial institutions including investment banks, hedge funds and technology provider eSpeed, has been surrounded by ambiguity since the announcement of its launch in December. One of its early “code names” was Four Seasons. First it had a CEO, then it didn’t, and in the meantime several people were rumored as candidates for the position. A headquarters and key staffers were not named yesterday. Today, ELX launched an Independent Software Vendor (ISV) program to support access to the exchange, wherein participating ISVs will provide connectivity to institutions trading on the exchange. ELX said it is “committed to creating deep liquidity [and] providing rapid execution by leveraging the electronic trading system of eSpeed.”

Rumors are floating about MF Global as its stock price dropped from an open today of $16.11 to a low of $3.64. Price as of 12:30 central time is back up to $7.05. MF Global released the following statement: Download file. A couple weeks ago MF Global had run into problems of a trader/broker who lost $141 million in wheat futures. The company was able to contain the problem, although it appears the broader market woes of the Bear Stearns troubles have flowed into other brokerage firms/investment bank share prices.

Poor CME Group. On the day it announces one of its proudest achievements, that it entered into an agreement with the New York Mercantile Exchange to combine interests, basically buy the oil exchange, what happens? The markets goes into free fall due to the near failure of one of the street's largest investment banks Bear Stearns, one of its largest clearing members, MF Global, loses 62% of its stock value in a day and the CME's own stock share ended the day down by almost 8%; at its worst point was down 15%. CMEGroup Executive Chairman Terry Duffy, an Irishman who should have savoured this St. Patrick's Day, no doubt felt as pounded on as his exchange's stock.

The good news is at least as of today, most precincts have reported in for MF Global: the CME, Intercontinental Exchange and London.Clearnet all sent releases that MF Global was in good standing. Even the industry's regulator, the Commodity Futures Trading Commission, sent a notice stating the same. Perhaps traders should take this St. Patty's day to reflect on what Scarlett Ohara said, "Tomorrow's another day."

Everyone is expecting the Federal Open Markets Committee (FOMC) to come in later today with a significant cut in the Fed Funds rate following its March meeting. Estimates in the general business media range from 50 basis points to 100 basis points, a full 1% pushing the rate from 3% to 2%. That would leave the Fed with very few bullets and continue to ignore disturbing inflation data.

Last Friday after markets closed, CME Group got what could have been an obstacle to its definitive agreement to acquire Nymex Holdings, announced on Monday, off the table by selling the CBOT metals complex to NYSE Euronext. The deal looks shiny and bright for both exchanges. NYSE Euronext gets an entry point in the U.S. futures business, while CME unloads its metals complex to make way for the acquisition of the Nymex.

Pending regulatory approvals, full and e-mini gold and silver futures and options will begin trading later this year on NYSE Euronext trading system LiffeConnect. “This is our initial entry in the U.S. futures business, and is consistent with the goals set forth in NYSE Euronext merger,” says an NYSE Euronext spokesperson, adding that the benefits of the deal include “more growth opportunities and the continuing use of Liffe Connect technology.”

The somber news for investment banks continued today with Merrill Lynch's dismal first quarter earnings report. The investment bank reported a $1.97 billion net loss and net write-downs totaling $1.5 billion, and said it would cut 2,900 more jobs. Compared to some other investment banks' woes this quarter, though, Merrill doesn't come off looking quite as bad - UBS reported a $12 billion loss and $19 billion write-down in Q1 (after which its chairman stepped down), and Deutche Bank wrote down $3.9 billion in the first quarter.

While banks are recording massive write-downs due to the subprime meltdown, hedge fund managers, like John Paulson, number one on Alpha Magazine's 2007 ranking of highest-paid hedge fund managers, are making billions shorting the subprime market. In 2007, Paulson, who also topped Forbes' list of Wall Street's Top 20 Earners for 2007, earned $3.7 billion shorting the subprime market. Seventeen of those who made Forbes' top earners list are hedge fund executives.

Yesterday in Washington, the Commodity Futures Trading Commission (CFTC) held a forum to discuss extreme volatility and price discovery in the ag markets. Representatives from various ag producers were up in arms about increased volatility and the increase of speculative money coming into the market. Mark Keenum of the U.S. Department of Agriculture noted, “increased volatility in futures markets and sharply higher prices have led to higher margin requirements and increased cost of hedging. Cotton shippers and some grain elevators are no longer bidding for future delivery because of risks and costs associated with maintaining hedges. The increasing disconnect between traders and speculators has raised fears that cash and futures markets will face convergence problems if the trend intensifies.”

CFTC Acting Chairman Walt Lukken said the agency is treading carefully on its consideration to raise spec limits for ag commodities. “Given current market conditions and the uncertainty surrounding additional speculative money on these markets, I will be very cautious about moving forward with such initiatives at this time,” Lukken said. The producers at the forum were very much against increasing spec limits. John Popp of the Independent Bakers Association said increasing spec limits puts too much power into the hands of speculative traders. While CME Group is for raising spec limits, CME Group Vice Chairman Charlie Carey said it does advocate the deferred consideration of increases by the CFTC. “We don’t want to be accused of making a situation worse…we understand the marketplace is in a tough spot,” Carey said.

In an effort to curb fraudulent trading activity, Deutche Bank is instituting a policy forcing employees with "sensitive" roles to take 10 consecutive vacation days a year, according to Bloomberg, which notes that Credit Suisse has a similar policy, mandating five consecutive days of leave each year for all of its employees. This looks like a wise move on Deutche and Credit Suisse's part in the wake of a rash of rogue trader activity that has included the mammoth $7.2 billion fiasco at Societe Generale and the $141.5 million rogue wheat trader episode at MF Global. The SocGen rogue trader, Jerome Kerviel, only took four days of vacation last year, Bloomberg noted. Interestingly enough, Kerviel is now back at work. Last week the AP reported that Kerviel, now on provisional release from prison, has a new job as a computer consultant, hired by the same man who hid him from journalists when the SocGen scandal broke.

When Commodity Futures Trading Commission (CFTC) Acting Chairman Walt Lukken testified before the Senate appropriations committee on the CFTC's FY09 budget today, he was hit with questions on the role of speculators in driving up oil prices. In his opening statement, Lukken requested increased funding for tech upgrades and staffing increases, brought up record prices for ag commodities (saying that the CFTC finds that current higher futures prices "are generally not a result of manipulative forces"), and mentioned the CFTC's ag forum two weeks ago to investigate higher prices in the ag markets. As the comment period for the forum ends today, he said the CFTC hopes to release initiatives on the issues that came out of the forum "in the near future." The senators were more interested in price manipulation in oil rather than ags, however.

The Wall Street Journal reported today that the House and Senate are set to hold hearings on speculation in the energy markets in May and June, setting their sights on the role of hedge funds and investment banks in driving up the price of oil. Crude futures on the New York Mercantile Exchange (Nymex) set a new record on Friday, closing at $125.96. The hearings news comes after a Senate panel questioned Commodity Futures Trading Commission (CFTC) Acting Chairman Walt Lukken on speculation in the energy markets and proposals by the Senate last week to increase federal oversight in global energy markets. The Intercontinental Exchange released a statement condemning the proposals and Nymex said the proposals would result in "a significant step backward in transparency and market integrity." A few years ago, a study by CFTC economists found no correlation between speculation in energy and volatility and or higher prices. At the Senate hearing last week, Lukken said the CFTC found no evidence that speculators were responsible for driving up the price of oil.