Tuesday, April 15, 2008
China has quietly accumulated nearly a 1% stake in BP to help secure its oil supply to fuel rapid economic growth. The silent investment from China has come to the attention of Downing Street, which has been monitoring the situation carefully.
A Chinese sovereign wealth fund has purchased about 1 billion pounds ($2 billion) worth of BP (nyse: BP - news - people ) over a period of time, accounting for just less than 1% of the U.K.'s biggest enterprise. "We are aware of the Chinese holding and we welcome all shareholders," a spokesperson for BP said, confirming the investment without identifying which Chinese state fund had bought the stake, the Daily Telegraph reported Tuesday. Although the British government may publicly welcome the Chinese state fund's investment, the newspaper noted that all parties on Downing Street are keeping a close eye on developments.
U.K. Chancellor Alistair Darling is in Beijing this week for talks to tighten Sino-British economic links. He is speaking with Chinese government officials including Lou Jiwei, chairman of the China Investment Corp., the sovereign wealth fund that manages $200 billion, about 12% of China’s foreign exchange reserves. China Investment Corp., which invested $3 billion in Blackstone (nyse: BX - news - people ) last summer before the U.S. investment firm listed its shares on Wall Street, is not the company buying into BP, according to the Daily Telegraph.
Xinhua Financial Network News in Beijing said Tuesday that the buyer is actually SAFE Investment Co., a Hong Kong-registered investment vehicle of the State Administration of Foreign Exchange, which had already bought a 1.6% stake, worth around 1.8 billion euros ($2.9 billion), in France's Total (nyse: TOT - news - people ), the third-largest oil company in Europe. (See: "China Takes A Piece Of Total")
China's foreign exchange reserves hit $1.68 trillion at the end of March, the People's Bank of China, reported last week. In an effort to keep its rapidly expanding economy humming along, China boosted its crude oil production to 30.8 million metric tons during the first two months of this year, the National Development and Reform Commission disclosed earlier this month. But that constituted just a 1.2% rise from 2007; China will not achieve energy independence any time soon. Meanwhile, crude oil imports rose 9.5%, to 28.23 million metric tons, according to the agency. Still, shortages of gasoline and diesel fuel caused public discontent in some areas of the country.
To secure stable import supplies, China has been granting loans to oil-exporting countries in Africa such as Nigeria over the past few years. Investing in BP and other Western oil companies is seen as another way to raise China's bargaining power as a big importer.
Wednesday, April 09, 2008
Chalk up another convert from the oil bear camp: The U.S. Energy Information Administration has given up on seeing double-digit oil prices this year, and says $100 oil—and loads of volatility in crude markets—is the “new norm.” That’s a sudden shift from the $87 barrel of oil the EIA was forecasting in January.
What gives? For the U.S. energy agency, sustained high oil prices can’t be solely attributed to financial speculation, as many analysts insist. But it’s not entirely a supply shortfall either, though excess capacity is tight. Rather, it’s a double-whammy of increasing oil consumption in developing economies and greater domestic consumption in oil-exporting countries that offsets U.S. belt-tightening during the slowdown. Notes Neil King in the WSJ (sub reqd.):
Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized. In the Middle East, soaring energy needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more oil at home. The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.
Last week the price of crude oil broke new records, running about $110 a barrel. That's well above the previous record (in inflation-adjusted dollars) reached in 1980 after the revolution in Iran resulted in the nationalization of its oil.
Since tanks of crude are full to brimming, many traders in oil markets suspect that $110 could be the top price for now. But a growing number of oil-market analysts reckon the supply of oil to the world economy has reached a peak or is about to. The discoveries of new oil are now exceeded by the output of old oil. At some point, global oil output will start to decline, as happened in the United States in 1971.
If that is the case, before long $100-a-barrel oil will be regarded as "the good old days," says Robert Hirsch, a senior energy analyst at Management Information Services, Inc., a Washington, D.C., research and consulting firm.
The price of oil in the New York futures market, a financial market that promises the delivery of oil in the future, has already climbed more than $20 in the past two months.
Global oil production has been on a plateau at around 85 million barrels per day (b.p.d.) for about 3-1/2 years. It is widely debated whether that output level could be pushed much higher to reach demand in the future, which, according to the International Energy Agency (IEA) in Paris, could reach 98.5 million b.p.d. in 2015 and 116.3 million b.p.d. in 2030.
What greatly concerns Mr. Hirsch is that the US and most of the world has not prepared seriously for a "peak" in world oil output.
"If we wait until the problem hits us, we are in for very serious economic problems worldwide for at least 20 years," he says. "There is no good news. Nobody is really doing anything."
The peak for production of conventional liquid crude has or will occur sometime between 2005 to 2016, says Roger Bentley, an advocate of the peak-oil view at Reading University in Britain.
That same time span holds for nonconventional oil sources, such as the Canadian oil sands or the Venezuelan oil tars, he maintains.
A few years back, Hirsch and two other experts wrote a report for Science Applications International Corporation on the impact of the peak. It concluded that the price volatility of oil will increase dramatically and, "without timely mitigation, the economic, social, and political costs will be unprecedented … extremely damaging."
The biggest problem for the US is the supply of liquid fuel. Its more than 210 million automobiles and light trucks run on mostly gasoline.
The average age of the cars is nine years. So replacement of only half the automobile fleet will require 10 to 15 years.
1. Prices, Production and Exports
2. Electricity Shortages and Diesel
3. Rice, Inflation and Oil
4. Massachusetts Hosts a Meeting
5. Energy Briefs
1. Prices, Production and Exports
It was another week of volatility for oil prices as a potpourri of fundamentals, financial crisis, hearings, unemployment and a looming recession drove oil prices one way and then another. After losing $4 a barrel on Monday as speculators closed positions, prices recovered on Wednesday after the EIA reported that US gasoline stockpiles had fallen by 4.5 million barrels the previous week, twice what analysts had expected. On Friday, prices rose again to close out the week at $106 a barrel after the report that US jobs had declined for the third straight month, confirming fears that the US was headed for a recession. This time oil prices rose on bad economic news in expectation that there will be more interest rate cuts, a weaker dollar, and a flight to safe assets such as oil.
US gasoline prices rose to a record $3.30 on Friday and most analysts believe they will continue rising. The EIA is holding that average gasoline prices will peak at $3.50 later this spring, but many are predicting a spike to the vacinity of $4 a gallon.
In the wake of the inconclusive attack on Basra, Shiite cleric al-Sadr is calling for a million-man demonstration against the US "occupation" on Wednesday, the 5th anniversary of the fall of Baghdad. Some fear the demonstration could set off events destabilizing the government. In the meantime Iraq is still exporting oil from Basra at slightly below pre-attack levels.
OPEC reports March shipments were down about 85,000 b/d from February due to extensive maintenance and other problems in Nigeria that cut exports there to the lowest in five years. Of more interest was the report that Russia failed to increase its oil production for the third month in a row and the first quarter production was down by one percent from a year earlier. Moscow, however, is still predicting that production will grow by 1.7 percent this year, well below the 11 percent increase in 2003. Russin pipeline exports to Europe recovered to 4.23 million b/d in March, but many believe the surge was in anticipation of forrthcoming export taxs and that Moscows exports will soon drop.
2. Electricity Shortages and Diesel
Stories of current and imminent shortages of electric power are becoming more frequent each day. A combination of inadequate rain for hydro power, unaffordable oil and coal for thermal power, and rapidly increasing demand is leaving country after country with inadequate power for national grids.
It is becoming apparent that one of the unforeseen consequences of globalization is that there is simply not enough power being produced in the world to run the flood of inexpensive electric consumer goods TVs, kitchen appliances, air conditioners -- that are pouring from the factories of Asia onto the world.
The increasingly frequent "rolling blackouts" that are appearing around the world unfortunately are killing "essential" systems water pumps, hospitals, banking computers, factories, TV stations, and telephone exchanges as well as the less-essential consumer devices.
While electric companies may eventually be able to make special arrangements to exempt organizations that are vital to the economy from blackouts, there are massive numbers of organizations around the world that are completely dependent on electricity to keep functioning. For these, the choice is generate their own electricity with their own generators or shut down.
What is developing is a new and potentially very large demand for gasoline and particularly diesel fuel as the national power grids fall further and further behind in their ability to keep up with demand for electricity. Higher prices and shortages are clearly in store as more and more Chinese-made small and medium sized electric generators come into service around the world.
3. Rice, Inflation and Oil
Rice prices increased by 50 percent in the last two weeks to an all-time high as importing countries scrambled to hold off social unrest by securing supplies from the few exporters still willing to sell. As the staple food for 3 billion people, 33 countries are facing unrest as the price of food and energy becomes unaffordable.
There are multiple reasons behind the sudden price increase ranging from weather-related poor harvests, hoarding, and world-wide inflationary pressures resulting from high energy costs to the financial crisis. Major rice exporters such as India, China, and Vietnam have already curtailed or stopped exports to hold down domestic prices.
Among the hardest hit countries so far have been Bangladesh, the Philippines, and Pakistan where millions now face seriously restricted diets.
Even rich oil states are facing problems. Nigeria is one of the worlds largest importers of rice and Kuwait is now shut off from the Indian rice that is the staple food for most of the 1.3 million foreigners working in the country. Even the Saudis have removed the import duties on imported food. In Pakistan 80 million people are estimated to be at risk of not receiving sufficient food.
This situation is too complex to foresee future developments. If it gets worse, widespread food riots could topple governments. If millions are faced with starvation, pressure to stop production of biofuels will increase. Leverage of food exporting nations in world affairs will increase.
4. Massachusetts Hosts a Meeting
Last week Chairman of the Committee on the Environment of the Massachusetts legislature hosted a meeting on Peak Oil. The standing-room-only meeting heard presentations from Dick Lawrence, co-founder of ASPO-USA; economist Roger Bezdek one of the co-authors of the Hirsch Report on Peak Oil; John Kaufman, member of the Portland (OR) Energy Task Force; and Sen. Bob Duff and Rep. Terry Backer from the Connecticut General Assembly.
The material covered in the presentations should be familiar to readers of this publication. The meetings purpose was to provide background for the establishment of a Peak Oil Caucus in the Massachusetts legislature. The US Congress and the Connecticut legislature already have caucuses and other states are close to establishing bodies or legislation to deal with peak oil.
There is clearly a massive educational job ahead. As one speaker at the meeting pointed out, peak oil has not yet made it into the Presidential campaign. The various energy plans that have been proposed are directed at lowering gasoline prices or have little appreciation for the urgency or seriousness of the problem.
5. Energy Briefs
(clips from recent Peak Oil News dailies are indicated by date and item #)
Shell CEO van der Veer said easy-to-produce oil and gas would likely peak in the next 10 years. Van der Veer said while depletion of maturing conventional resources would certainly play a key role in peak production, lack of access to remaining large reserves, such as in Saudi Arabia, was also a central component in his forecast. (4/2, #2)
Diesel shortages are appearing across China from southern Guangdong to the northern Tianjian. Long queues of trucks and cars stretching over one kilometer have appeared at some gas stations; and at one point, diesel was rationed to 300 yuan. (4/2, #8)
In South Africa, year-over-year mining production for January was down 10.7 percent owing largely to the electricity supply crisis that led to mine closures, with gold production in particular feeling the effects. (4/4, #3)
Aloha, ATA and Skybus airlines halted passenger service last week, casualties of fierce competition and rising fuel prices. (3/31, #17)
Ecuador wants to increase its participation in oil projects to more than 50 percent following contract negotiations with private firms. (4/4, #5)
A court-appointed expert in Ecuador has recommended that Chevron pay $7 billion to $16 billion if it loses a marathon lawsuit over oil-field contamination in the Amazon. (4/4/, #6)
Venezuelas lawmakers approved the first reading of a new tax on oil companies that will take as much as 60% of their gains from sudden increases in world oil prices. (4/4, #7)
ConocoPhillips said on Thursday its first-quarter oil and natural gas production, just below 1.8 million barrels/day, was down more than 2 percent from fourth-quarter levels, hurt by an unplanned shutdown of a natural gas processing plant. (4/4, #11)
BP America announced a new significant oil discovery at their Kodiak well in the deepwater Gulf of Mexico in 5000 feet of water. Further appraisal will be required to determine the size and commercial potential of the discovery. (4/4, #13)
In Alberta, TransAlta Corp., facing rising unease over greenhouse-gas emissions from their coal-fired generating plants, has announced a deal with Alstom to develop a large carbon capture and storage facility (4/4, #14)
India's Oil and Natural Gas Corp ONGC.BO plans to invest $450 million over three years in exploration and production at San Cristobal oilfield in Venezuela, a senior government official said on Saturday. (4/5, #6)
Indias oil imports increased to 2.48 million b/d in February, 8.1 percent more than a year earlier to meet a demand that surged 10.9 percent. (4/2, #11)
Pressure from the Kremlin on BP's joint venture in Russia, TNK-BP, may before long lead the British oil company to cede control to either Rosneft or Gazprom, the Russian stateowned energy companies. (4/5, #17)
Russia failed to grow its oil output for a third month in a row in March and closed the first quarter with a one percent production decline year-on-year. Energy Ministry data showed on March oil production edged down to 9.76 million barrels per day from 9.79 million bpd in February, and well below the post Soviet high of 9.93 million bpd reached in October last year. (4/3, #16)
Libya says it will review all future contracts with oil companies in a bid to reap more benefit for the country, a senior Libyan government official told Dow Jones Newswires. (4/1, #4)
The American Trucking Associations is calling for the return of a uniform national speed limit of 65 mph for all cars and trucks to help cope with the soaring price of diesel. (6/4, #21)
Europe's refineries are shutting around 900,000 barrels per day of capacity for maintenance in April, more than many expected at a time when diesel supply in Europe is running low. Even at 900,000 bpd, or about 5.5 percent of Europe's total capacity, the schedule is lighter than it was in April 2007, when well over 1 million bpd was shut.
US lawmakers scolded oil industry executives for booking huge profits on record gasoline prices while not investing more in renewable energy. Executives were asked to explain why they should not forfeit $18 billion in tax breaks after posting profits of $123 billion. (4/2, #6)
Tuesday, April 08, 2008
Veteran oil industry financier paints grim picture of resource scarcity, derailed global growth; others disagree
WASHINGTON -- Matt Simmons sounds the alarm like the Cassandra of the oil industry, warning that crude production has peaked and that looming energy shortages could derail global growth and even spark armed conflict.
As a prominent "peak oil" theorist, the veteran oil industry financier paints a grim picture of a world facing resource scarcity. Still, it doesn't take a "peak-ist" to conclude that the global oil producers will find it increasingly difficult to keep up with growing demand.
He squared off yesterday against other experts who argue that the world has yet to reach the physical limits of oil production. But while they disagreed on the extent of the problem, the panelists at a U.S. Department of Energy conference in Washington concurred that future crude production will be constrained by physical, economic and political factors that add up to tight markets and higher oil prices.
Despite oil prices that have topped $100 (U.S.) a barrel, there was little sense at yesterday's conference, put on by the Department of Energy's Energy Information Administration, that high prices would spark either a boost in oil output or a sharp fall in global demand.
Global demand for oil will continue to grow, analysts forecast, even as the developed world reduces consumption in the face of high prices and environmental concerns. Economic growth and rising living standards in developing countries like China, India and the Middle East will more than offset reduced energy consumption in the mature economies of North America and Europe.
The views of Mr. Simmons, who runs Houston-based Simmons & Assoc. investment bank, bordered on apocalyptic.
Oil shortages "could lead to social chaos and war," he warned. "The issue is the most serious risk to sustaining the 21st century. Peak oil is real, and we have to take it seriously." He argued that production of conventional crude peaked in May, 2005, at 74 million barrels a day.
Since then, the world has met rising consumption - now at about 88-million barrels a day - by cutting inventories, tapping natural gas liquids that typically are included in crude production figures and using better refinery efficiencies.
Peter Jackson, a director at the Cambridge Energy Research Assoc., said Mr. Simmons was overstating decline rates of existing fields, was not taking into account the prospect for new discoveries, and played down the importance of unconventional resources such as Canada's oil sands.
Still, he said the industry faced "above ground" problems that would make it difficult to keep production growing fast enough to meet rising demand. About 90 per cent of existing conventional reserves are controlled by state-owned oil companies, many of which are not investing enough in capacity expansion, he said.
At the same time, the industry worldwide has seen construction costs explode, even as oil companies are forced to exploit smaller, more remote and more geologically complex reserves. The average cost of producing a barrel of oil has more than doubled in the past eight years, with most of that increase occurring in the past four, he said.
James Schlesinger, who was the United States' first energy secretary 30 years ago during the oil shock of the late 1970s, warned of a new crisis looming.
That 1970s shock was the result of supply disruptions caused by the 1973 Arab embargo and then the Iranian revolution. The current runup in prices reflects a more fundamental disconnect between constrained supplies and rising demand in the developing world, he said.
"At some point during the decade immediately ahead, we will hit a plateau, and this will have a tremendous shock both economically and politically," Mr. Schlesinger said.
Monday, April 07, 2008
This basic tenet of economic behavior set me to researching methods to avoid losing my money's value as inflation builds. As many readers will already understand, I believe that the inflationary pressure from global peak production of oil and it's subsequent decline, will be the major factor which drives economic trends world-wide in the years to come. As conventional oil becomes ever more expensive because of depletion, not only will oil and it's refined components (Diesel gasoline etc...) become more & more expensive as time passes, but so will all those products & services which rely heavily on transport fuels.
So that's the puzzle... how to protect your money from this predatory inflation?
In my research I have explored various investment vehicles as potential candidates for sheltering money including of course, oil futures. And while I still feel that oil (& gas) futures are excellent investment opportunities for the long trade, leveraging the volatility of the markets during inflationary expansion & contraction seemed prudent. By investing a certain percentage of the total investment package on assets which can benefit from inflationary volatility, I could provide shelter for longer-term investments which might be vulnerable to those same inflationary pressures.
That's what finally brought me to the Foreign Currency investment market.
Because a disciplined forex trader can use this inflationary instability to earn money trading on the relative value of currency pairs, it makes perfect sense to leverage what I consider to be a virtual certainty... (oil which gets more expensive every year), in the same way that oil futures offer excellent prices for what I also believe will be... very expensive oil.
And that's how I found my forex broker.
I looked for someone who didn't mince words, & understood without being told the importance of being highly disciplined and not getting greedy investing in the forex markets. That's the trick to making forex work... a trader who will protect investors even if an opportunity opens up which might be even more profitable, but violates the pre-set stops beyond which the risk is simply too high.
I was right... this fund has a very healthy growth rate and is performing well.
There are always risks in investing of course, but a real forex trader with a large, established firm absorbs these losses over time with discipline in their trades, which compound quite nicely thank you.
Anyway, I'm happy to share my research and contacts with anyone interested.
Going to be on heck of a ride if you ask me.
FOREIGN CURRENCY TRADING FRAUDS
- Have you been solicited to trade foreign currency contracts (also known as "forex")?
- If so, you need to know how to spot foreign currency trading frauds.
The United States Commodity Futures Trading Commission (CFTC), the federal agency that regulates commodity futures and options markets in the United States, warns consumers to take special care to protect themselves from the various kinds of frauds being perpetrated in today's financial markets, including those involving so-called "foreign currency trading."
A new federal law, the Commodity Futures Modernization Act of 2000, makes clear that the CFTC has the jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. In addition, the CFTC has jurisdiction to investigate and prosecute foreign currency fraud occurring in its registered firms and their affiliates.
The CFTC has witnessed the increasing numbers and growing complexity of financial investment opportunities in recent years, including a sharp rise in foreign currency trading scams. While much foreign currency trading is legitimate, various forms of foreign currency trading have been touted in recent years to defraud members of the public.
Currency trading scams often attract customers through advertisements in local newspapers, radio promotions or attractive Internet sites. These advertisements may tout high-return, low-risk investment opportunities in foreign currency trading, or even highly-paid currency-trading employment opportunities. The CFTC urges you to be skeptical when promoters of foreign currency trading claim that their services or account management will earn high profits with minimal risks, or that employment as a currency trader will make you wealthy quickly.
Understanding Legitimate Foreign Currency Operations
Generally speaking, foreign currency futures and options contracts may be traded legally on an exchange or board of trade that has been approved by the CFTC.
Even where currency trading does not occur on a Commission-approved exchange or board of trade, the trading can be conducted legally where, generally speaking, one or both parties to the trading is (or is a regulated affiliate of) a bank, insurance company, registered securities broker-dealer, futures commission merchant or other financial institution, or is an individual or entity with a high net worth.
Where forex firms do not fall into the categories of regulated entities outlined above and engage in foreign currency futures and options transactions with or for retail customers who do not have high net worths, the CFTC has jurisdiction over those firms and their transactions.
Warning Signs of Fraud
If you are solicited by a company that claims to trade foreign currencies and asks you to commit funds for those purposes, you should be very careful. Watch for the warning signs listed below, and take the following precautions before placing your funds with any currency trading company.
1. Stay Away From Opportunities That Sound Too Good to Be True
Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds.
Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.
2. Avoid Any Company that Predicts or Guarantees Large Profits
Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.
The following are examples of statements that either are or most likely are fraudulent:
- "Whether the market moves up or down, in the currency market you will make a profit."
- "Make $1000 per week, every week"
- "We are out-performing 90% of domestic investments."
- "The main advantage of the forex markets is that there is no bear market."
- "We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.
The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:
- "With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
- "We promise to recover any losses you have."
- "Your investment is secure."
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.
Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.
8. Be Sure You Get the Company's Performance Track Record
Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive. While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking charts, that the information they contain might be false.
9. Don't Deal With Anyone Who Won't Give You Their Background
Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says.
Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form.
If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies.
10. Warning Signs Of Commodity "Come-Ons"
If you are solicited by a company to purchase commodities, watch for the warning signs listed below:
- Avoid any company that predicts or guarantees large profits with little or no financial risk.
- Be wary of high-pressure tactics to convince you to send or transfer cash immediately to the firm, via overnight delivery companies, the internet, by mail, or otherwise.
- Be skeptical about unsolicited phone calls about investments from offshore salespersons or companies with which you are unfamiliar.
- Prior to purchasing:
- Contact the CFTC.
- Visit the CFTC's forex fraud web page.
- Contact the National Futures Association to see whether the company is registered with the CFTC or is a members of the National Futures Association (NFA). You can do this easily by calling the NFA (800-621-3570 or 800-676-4NFA) or by checking the NFA's registration and membership information on its website at www.nfa.futures.org/basicnet/. While registration may not be required, you might want to confirm the status and disciplinary record of a particular company or salesperson.
- Get in touch with other authorities, including your state's securities commissioner (www.nasaa.org), Attorney General's consumer protection bureau (www.naag.org/), the Better Business Bureau (www.bbb.org) and the National Futures Association (www.nfa.futures.org).
- Be sure you get all information about the company and verify that data, if possible. If you can, check the company's materials with someone whose financial advice you trust.
- Learn all possible information about fees charged, and the basis for each of these charges.
- If in doubt, don't invest. If you can't get solid information about the company, the salesperson, and the investment, you may not want to risk your money.
- Contact the CFTC.
11. More Information and Contacts
- Questions concerning this advisory may be addressed to the CFTC's Office of Public Affairs at (202) 418-5080.
Commodity Futures Trading Commission
Three LaFayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581
- The Commodity Futures Modernization Act is available in our Law and Regulation page.
(requires an Adobe Acrobat reader, which can be downloaded for free from www.adobe.com and numerous other sites on the Internet)
- For other consumer advisories concerning possible fraudulent activity in the commodity futures and options industry, click on the Customer Protection page.
- Contact the National Fraud Information Center (www.fraud.org).
- The CFTC's website also offers general information about trading in the commodity futures and options markets. You may wish to visit our Before You Trade page.
- To find out whether firms or counterparties with whom you plan to trade are registered or regulated institutions or entities that are outside the CFTC's jurisdiction, you can check the lists of regulated institutions on the following websites. Some institutions outside the CFTC's jurisdiction do not appear on any of these lists or in other readily-available places:
- Federal Reserve Board (www.federalreserve.gov)
- Federal Financial Institutions Examination Council (www.ffiec.gov)
- Federal Deposit Insurance Corporation (www.fdic.gov)
- U.S. Securities and Exchange Commission (www.sec.gov)
- The Office of the Comptroller of the Currency (www.occ.treas.gov)
- Office of Thrift Supervision (www.ots.treas.gov)
- National Credit Union Association (www.ncua.gov)
- National Association of Securities Dealers Regulation, Inc. (www.nasdr.com)
- All U.S. Government web sites can be located through links at www.firstgov.gov
- Your state Attorney General's office and state banking, insurance and securities regulators (which often have their own web sites).