Remember $4 gasoline? Or record high prices for gold, platinum, corn, you name it?

"The Tyranny of Oil: The World's Most Powerful Industry--and What We Must Do to Stop It" by Antonia Juhasz

Only a few months ago we were experiencing a commodities bubble. Experts all said prices would go up and stay up because of "increased demand from China" and things like that. I believed it. I bought gold at $940/oz... and then the market imploded. Now oil is almost down to $70/brl again, most commodities are off 40% and the experts are talking about recession not about commodity demand. Whippee! Im ready to celebrate cheap gasoline with a new HMMR.

I had been thinking about this rapid reversal of fortune in commodities when I heard an interview with Antonia Juhasz on the radio. The title of her book (The Tyranny of Oil: The World's Most Powerful Industry — and What We Must Do to Stop It.") was rather inflammatory but her comments were enlightening. Put another way, they were another example of “Is that REALLY true? Geez, what else DON’T I know?” or in simpler terms an example of the Bush43 administration.

I long suspected that the commodity price run-up was not due to normal supply and demand. Even professional traders in oil were saying as much. Everyone suspected that “speculators” not “consumers” were at the root of price rises but no one in government seemed able (or interested) in proving it.

Then the government quietly enacted some laws that prohibited certain firms from buying commodities. Almost immediately prices started to fall. Hmm.

In the case of oil, Juhasz tells us that the oil market actually was Enron/California all over again. Meryl Lynch and Morgan Stanley helped the oil companies create a second (unregulated) commodities market just for trading oil. More significantly, that private exchange got even larger than the public exchange. Whaaa? How was this never in the newspaper?

Not only does the author make a strong argument that the price of oil was directly manipulated by this shadow exchange but she argues that the reason Meryl and Morgan are still alive is because of the collateral they had from these oil investments. They had the same CDS and MBS losses as other wall street firms but unlike Bear Stearns et al., they had the oil collateral to stay solvent long enough to get bought. Wow.

The more you know, the more you don’t know.