From Mistresses To Commodity Prices, French Premiers Refocus Their Aims

You know commodity prices have reached a new stage of importance -- beyond trading floors and procurement departments -- when French Prime ministers take aim on the financial injustices wrought by speculators and the like rather than spending their hours seeking out new lady friends and the like (incidentally, Carla Bruni is just as gorgeous as ever in her Cameo in the new Woody Allen flick, Midnight in Paris). Aside from taking care of his lovely wife, Nicolas Sarkozy recently used his floor time during a G20 speech to rail against commodity price inflation and those parties helping put upward price pressure on the market. A Financial Times article captures the essence of his argument and recommendation of a "three-pronged" approach toward remedying the situation. His ideas include "boosting production; increasing transparency in commodities derivatives markets by standardizing contracts and forcing more deals on to exchanges (most are currently bilateral); and setting a minimum amount of collateral that parties must post when they enter into a derivatives transaction."

Perhaps it's not surprising that a French premier -- even a conservative one -- would argue for greater regulation and less free market approaches to trading in commodities markets. Lisa Reisman, co-leader of our analysis of the metal markets on MetalMiner, had this to say about Sarkozy's ideas: "'Boosting production' sounds like a communist tactic to increase employment. Does France have a central planning committee or something? It sounds like a central planning edict from the politburo. Go back and look at 1960's steel production and commentary in the US. This is how we used to talk, and look what happened to our steel industry, many bankruptcies later. 'Boosting production' is a communist edict, not a practical strategy. Production will increase if demand remains. Period."

Lisa adds that she "agrees that we should increase reserve requirements, yet moving more things to exchanges shows a misunderstanding of commodity markets today. Consider how aluminum's move to exchanges has created all sorts of inefficiencies in warehousing and stockholding, thus creating a greater probability of market manipulation -- not less." Lisa's bottom line is that "if the issue you're trying solve is high prices, then you've got to go after the true sources: artificially low interest rates and the printing of money in the US and elsewhere has led to inflation and speculation in commodity markets which is driving price increases. Moreover, China and emerging market demand is also fueling demand and you can't put a lid on that bottle. Until that demand is squashed, there's no stopping it."

Jason Busch

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