"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's free work will soon be available at www.traderdan.biz

Wednesday, May 2, 2012

Dodd-Frank Strikes the Commodity Markets

I will try to write more on this later as I am still working the session but news came out last evening that CME was requiring all member firms to comply with regulations arising from Dodd-Frank which basically is forcing margin requirements for all "Non-Hedges" to effectively double as of this coming Monday.

Talk about short notice!

The ramifications of this are obviously huge and no doubt are adding to an already volatile mix of madness. Those traders with losing positions are going to be impacted even more since the new requirements may well push them over the line as far as margin calls and force them to either liquidate or come up with more cash, immediately.

I think some of what we saw in the markets today is traders already anticipating this with the result that we had a significant amount of position squaring.

more later... hopefully....

Here is a chart showing the carnage in the commodity sector. Of course not all of this was caused by Dodd-Frank but it certainly did not help the case of those who are generally LONG COMMODITIES to have such lousy economic data coming out of the US in today's session which generated risk off trades. Combine that with the fact that their margins are going to be doubled soon and it does not take a rocket scientist to understand why we are seeing such strong selling across the commodity sector today.

Like I heard elsewhere - there are two main things wrong with Dodd-Frank; Dodd and Frank. One is out of the Senate (thank heaven) and the other is retiring from the House (a double thanks).


  1. Dan, where are your sources? I have a hard time believing it would be 100% more margins over a weekend.

  2. Yep, Bernanke has a plethora of tools in his arsenal to battle inflation.

    So far, he's only used "gum flapping" and Dodd-Frank. He has yet to use more margin hikes, actual threats of raising interest rates, or officially ending all QE programs.

    Looks as if commodity inflation is officially dead.

    And the U.S. Consumer is now luxuriating in the lowest interest rates in 45 years, falling CRB index, improving job market, etc.

    Any wonder why all the major retail and consumer discretionary ETF's are all trading at lifetime, world record highs?

    And any and all attempts by the CRB Index or the XAU to turn the corner are immediately thwarted.

    Golf clap for Bernanke.

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