Speculators Perform No Useful Social Function
Got it?
From the Washington Times: "Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher.... 'Something is wrong,' said National Farmers Union President Tom Buis, adding that the CFTC's refusal to rein in speculators will force farmers and consumers to take their case to Congress.
"'It may warrant congressional intervention,' he said. 'The public is all too aware of the recent credit crisis on Wall Street. We don't want a lack of oversight and regulation to lead to a similar crisis in rural America.'"
(Yes, he really said the credit crisis was the result of a lack of oversight and regulation.)
Now for a little thoughtcrime. The speculator helps society adjust to changing circumstances by buying in anticipation of resale in the future when scarcity is expected to be greater and prices higher. In that way, he ensures additional supplies will be available in the future, diverting them from present use to their more urgently demanded uses in the future, and thus helps to smooth out disruptions caused by decreases in supply.
Comments (50)
Kind of like politicians and their buddies, then?
Published: April 23, 2008 11:01 AM
In other words:
They buy now, increase price now, decrease consumption now, to sell later, thereby driving prices down later, thereby enabling consumption later.
In still other words:
Making sure that prices now are not so low so that consumption now cannot consume all that is available, thereby leading to a near depletion in the future that will make prices too high for almost everyone.
The case is clear, since the public only reads poetry and history in schools, and not books like The Incorrect Guide to Capitalism, it is hidden to many.
Published: April 23, 2008 11:48 AM
I accept this proposition on its face but am left wondering: does the act of the speculators buying drive the price up in and of itself? The anti-speculators could make the argument that had the speculators never bought the goods, the prices wouldn't have risen in the first place (or wouldn't have risen as much).
In other words, does "artificial" hoarding raise prices, all other things being equal?
Published: April 23, 2008 11:55 AM
Ah just noticed... 'peform' should be 'perform'.
Published: April 23, 2008 11:57 AM
...since the public only reads poetry and history in schools...
I have concluded that history in my own public school education was little more than a chronological sequence of political campaign slogans, punctuated by the odd war.
Published: April 23, 2008 11:57 AM
What is artificial hoarding?
Published: April 23, 2008 12:10 PM
Same thing is going on in the hops world and the world beer market.
Speculators/warehouses bought up crop after crop of many a fine specialty hop, then those farmers/agrarians were lured/leaned/influenced into rotating different crops. Because they didn't keep producing the hops and demand for them increased; there is now a shortage. The warehouses are out; brewers are forced to pay outrageous costs for what is left and through the nose now for shipping as well. It takes several years for these hops to mature for harvest.
This is a specialty market, but an example non-the-less of speculation driving the market.
Published: April 23, 2008 12:12 PM
Nevermind investment that got diverted away from agriculture towards capital goods during the world's Central Banks credit boom and the obvious ravages of inflation as a result.
There is currently a combination of shortages and inflation which is a double whammy. Ouch!
Published: April 23, 2008 12:22 PM
"In other words:
They buy now, increase price now, decrease consumption now, to sell later, thereby driving prices down later, thereby enabling consumption later."
That is much clearer and more effective than the way I explained it. Thanks.
Published: April 23, 2008 1:10 PM
This is a good depiction of the role of speculators. In addition, speculators increase liquidity in illiquid markets, making it easier for producers to sell their products.
If politicians want to limit profits from speculation they should also be willing to limit the losses of speculators, too, with some kind of price support like those certain farmers enjoy. Speculators in oil lost millions last summer betting that the worst hurricane season ever (as forecast by the hysterical global warming crowd) would reduce supplies of oil.
Anyone who studies the history of financial crises knows that at the start of every crisis for at least the past 400 years politicians have blamed speculators and greedy businessmen for the problem. Real economists know that credit expansion caused the boom that led to the crisis.
Published: April 23, 2008 1:25 PM
Speculating is no different from putting food in the freezer (or some other storage). Instead of satisfying our hunger completely right now, we anticipate that there might be food shortages in the future. So we put part of our food into the freezer to prepare for that future time (which may or may not happen). In this case, price is our level of hunger. Putting our food into storage results in our going a bit hungry now (the price rises) but results in not being as hungry in the future (prices not so high) as we would be if we had no food to eat (high level of hunger or price). This means that not speculating will result in higher future prices than if speculation did not exist or was forbidden. Yes it raises prices now too but it prevents starvation in the future. The risk speculating comes with is that you go hungry now and food is abundant in the future, i.e. no hunger meaning the future price is low and you felt hunger in the past for no reason (i.e. you lost). I believe speculation smooths out the potential threats of an uncertain future.
Published: April 23, 2008 1:31 PM
Mike @ #6 said: What is artificial hoarding?
I would define this as the purchase of consumer goods that one would not normally acquire, except for the sole purpose of speculation.
Published: April 23, 2008 1:39 PM
Mike: "What is artificial hoarding?"
My guess would be that artificial hoarding is when individuals attempt to manipulate the price of a good above what it would normally be in the marketplace by buying up and/or hoarding all of the available supply to create a high level of artificial scarcity that would not exist otherwise. That is to say that the illusion that the good is scarce in the world as a whole is deliberately created in order to drive up the going price of the good.
Of course, this would only work in situations in which the demand for a good was highly inelastic such as in the case of staple foods or mediciations. If the demand for the good was elastic, then buyers would opt not to buy the higher priced good and seek a substitute instead.
As an example, it is my understanding that diamonds are not nearly as rare as people are led to believe they are. (See here: http://www.theatlantic.com/doc/198202/diamond) Instead, the diamond producers make sure that they only allow so many diamonds into the marketplace every year in order to maintain their high price in the marketplace. It is their coordinated, "artificial hoarding" of diamonds along with an extremely effective advertising campaign that maintains the high market price of diamonds.
At least, that is my understanding of the situation.
Published: April 23, 2008 1:56 PM
Thanks NM, I thought that is what you meant. Simply speculation.
Thanks also to Chad for summing up the fallacious argument against speculators, um "artificial hoarders", so succinctly.
So what do these "artificial hoarders" do with all the hoarded supply once they have created "artificial scarcity" and driven up prices?
Published: April 23, 2008 3:36 PM
Great! I came over to the blog specifically to see if the Mises crowd had a take on this issue, so I'm glad to see Thomas' and Sean Corrigan's posts here.
I've been wondering how some of the Austrians might address this topic, and it's good to see Thomas' comments on the useful function of speculators, and to see those thoughts elaborated on here in the comments section.
I took up this topic Tuesday on my blog. Maybe some of you will be interested to read the reports of how other countries have fared in the wake of their "ban speculation" campaigns.
http://financetrends.blogspot.com/2008/04/government-meddling-on-food-prices.html
One other person whose comments I'd love to hear on this issue would be Victor Sperandeo, a career trader/speculator with a deep background in Austrian economics. It would be very interesting to hear his explanation of how speculation affects commodity prices.
Published: April 23, 2008 4:29 PM
David,
The effects of speculators (like Victor) are well known. His take will be "to earn profits" (that, by itself, being good), and by doing so, he will affect commodity prices like explained in the original post.
Restrictions on the free market always work like sand on a motor - it will slow it down (the speed), and destroy its interior at the same time.
Published: April 23, 2008 4:36 PM
In fact speculators are good for everyone. They increase prices, so farmers (seeing increased prices) plant more crops to take advantage of that price. This ensures that there is plenty of food next year (even if there is a drought!) so that we don't go hungry.
Published: April 23, 2008 5:55 PM
I should have waited to post - most people won't understand what I'm getting at: The unintended consequence of opposing speculation is mass starvation in lean years.
Speculators are buying excess food produced this year. Some of that food will spoil in storage. Yet they still think they can make money selling it next year. This can only work if for some reason farmers manage to not grow enough food some year - the speculators are there to sell in those lean years. Without the speculators the farmers would burn their crops (of course many farmers also practice speculation on the side, storing their crops for several years), and then in the lean years there isn't enough for everyone. Any farmer selling crops is doing so because the time value of the crop works out in favor of selling. Any farmer who thinks he is better off storing the crops will do so. (of course farmers have limited storage, and they need to sell some crops to pay for expenses)
Sure the speculators are driving prices up today. However when they sell they will drive the prices down. What makes this strange is prices are high when they are selling, and (relatively) low when buying. So you don't see how much worse you would be if they hadn't bought the crops and paid for storage.
Published: April 23, 2008 6:09 PM
Last time I traded futures on the CME and CBOT there were limits on the number of contracts speculators could hold - typically less than hedgers. Has this changed since I retired?
I love the irony though - the Dept of Agriculture paying farmers not to grow crops! Subsidizing farmers to burn corn to make ethanol! Now people are complaining about rising food prices and asking the Federal Government to do something about it.
Published: April 23, 2008 7:11 PM
Mike said: "Thanks also to Chad for summing up the fallacious argument against speculators, um "artificial hoarders", so succinctly."
With all due respect, I was not proposing any kind of argument about speculators or speculating per se. I was just entering in the middle of the conversation and trying to come up with some sort of totally off-the-cuff definition for a term ("artificial hoarding") that someone else had thrown out. There is really no need to be snarky about it.
Also, did I make an error somehow by mentioning that the market price of diamonds is kept artificially high by diamond producers intentionally withholding from the marketplace the true number of diamonds they mine and produce? That seems like a pretty reasonable demonstration of deliberate "hoarding" affecting the market price of a good with relatively inelastic demand.
Published: April 23, 2008 7:20 PM
Chad,
Am I "artificially" "hoarding" my labor by not working a part-time job right now, even though I have the time to do so?
As for diamonds, yes, De Beers tries to keep the price high by limiting the amount of diamonds and has succeeded only to the extent that it has involved governments nationalizing diamond mining and then coordinating a cartel amongst those governments.
Published: April 23, 2008 9:01 PM
Cui bono? Sounds like the Farmers Union is just angry they aren't capturing the high prices themselves...
Hey, aren't unions all about anti-competitive markets or something? Thought I heard that somewhere, wonder if that applies here too...
Published: April 23, 2008 9:58 PM
Speculators are the worst enemy of government as they steal the financial bounty off of bad government policy. Ergo speculators are the tax payers best friend. Explanation with examples:
1. Food prices going up... Speculators buy crop now so farmer has ability to buy seed, equipment, etc. Government does same thing except government uses tax payer money. Speculator uses own money.
Speculator 1 Government 0
2. Food prices going down...Speculators agree with farmers on price for future crop now mitigating farmer losses. Government pays farmers not to plant keeping unnecessary capacity in system with tax payer money of course.
Speculator 2 Government 0
3. In the future food prices go down...Speculators lose money they paid farmers for crops. Government does not lose money as it already stiffed tax payers for it. But don't worry, government will stiff tax payers more to give money to farmers to help them out. Sepculator gives a crap less.
Speculator 3 Government 0
4. Food prices go up...Speculator makes big bucks. Farmer made money also. Government gets tax money from speculator. Government then stiffs tax payers paying for foodstamps and what not.
Speculator 4 Government 0
Basically the tax payers are plus 4 with speculators and get shafted at every step by government.
To make matters worse the futures markets make millions of judgements on these topics worth billions of dollars trying to determine an unknown future. Government on the other hand could care less. They structure the game to stick the tax payer reguardless of what happens. So the final scores are:
Speculators/Tax Payers 4
Government/Farmers 0
No wonder farmers get so much congress time over the speculators.
Published: April 23, 2008 9:58 PM
I'm sorry to intrude on this canonization of speculators, but I see a step further and it can become worrying.
As was pointed out, the speculator risks losing his investment if there is no scarcity in the future. Wouldn't he be tempted then to, as much as he can, destroy future production of the good he has "hoarded" in the present? Are you guys saying that this never happened? That speculators never used government intervention in their favor (or other means) to diminish their risks by destroying the potential for future production of a certain good?
I actually just thought of this whilst reading your comments. It could be that I'm just paranoid. That this never happened and could never happen. I don't really know, I'm too tired to think at this hour.
Published: April 24, 2008 12:28 AM
Just after I read this article I checked some of the BBC headlines to find a piece on the high cost of rice.
http://news.bbc.co.uk/2/hi/business/7342493.stm
How best to sum up the trot rot?
The BBC defends expropriation of a rice warehouse in the Philippines for 'hoarding', praises the efforts of the Indian governments monopolization of the grain and whines about foreign rice in Ghana. To top it off, the reporter discussing the high cost of rice being felt by restaurants in the UK could not help himself from mentioning the 'real impact' on ethnic minorities.
Published: April 24, 2008 1:08 AM
Is profit from speculation simply a case of positive externality? If a bloke buys a 1 ounce gold coin at, say, $500, then finds out that the price is now $1000 he would get $500 for free if he sold it yet he didn't do anything rather everyone else did something else making gold $1000 hence what value did he create? Similarly if someone was to buy 100 acres of land when it was cheap and not valued much and development throughout over 20 years makes the land quite valuable as people now want the land to develop. A similar question is what wealth creating did this guy do? He didn't do anything others developed around the area causing land prices to rise. In both cases nothing internal happened but external factors just happens to make something go from 'not valuable' to 'valuable'. Therefore isn't this a positive externality (and conversely speculative loss = negative externality)?
Published: April 24, 2008 1:56 AM
Cosmin said: As was pointed out, the speculator risks losing his investment if there is no scarcity in the future. Wouldn't he be tempted then to, as much as he can, destroy future production of the good he has "hoarded" in the present? Are you guys saying that this never happened? That speculators never used government intervention in their favor (or other means) to diminish their risks by destroying the potential for future production of a certain good?
I actually just thought of this whilst reading your comments. It could be that I'm just paranoid. That this never happened and could never happen.
This has probably happened, and on present outlook, could happen again. But lets sort out who the villains are here.
Speculators' activities effectively discount the ( uncertain) effects of current events on future demand and supply in whatever market they participate in, thus allowing their expectations to be reflected in current prices. They ultimately rely on their 'guesses' about the future being more accurate than everyone who was in the market up to the point they make any transaction. They face a high risk of being wrong, and this is reflected in their high profits when they are right. These profits notwithstanding, they perform a very useful function because by discounting the expected effects of the future into the current price structure, they generate the pricing signals for producers to adapt their activities to the changes expected in the future before it arrives - to scale back in production of product A or expand the production of product B, as the case may be.
If there were no speculators, production and consumption will have no way to adapt their activities to forestall gluts, or shortages, ahead of their becoming reality. Put another way, if there were no speculators, your visits to the supermarkets would entail large gaps on the shelves for some items, and huge piles of unsold other products. Low, stable and unchanging prices dont help anybody if the goods are simply not available
But back to your central point: A speculator who 'uses government intervention in his favour' is not a speculator - he's called a rent-seeker. A very different animal. Regrettably, given the extent of government interference in markets, there are plenty of these rent-seekers masquerading as speculators out there, but to decry speculatiors as evil destabilisers is to miss the target completely. A baby/bathwater disposal problem.
Published: April 24, 2008 6:05 AM
"As for diamonds, yes, De Beers tries to keep the price high by limiting the amount of diamonds ...."
Ferrari does the same thing with sports cars. Those bastards!
Published: April 24, 2008 6:34 AM
Sam, what do you mean they do "nothing"? I think it is quite clear that they do something, that is to say anticipate changes in future supply/demand of the good.
Published: April 24, 2008 10:24 AM
DS,
Did you *read* my whole post? I think not.
Published: April 24, 2008 11:12 AM
In a free market, speculators perform an invaluable function: they allocate scarce resources efficiently by trying to forecast market conditions in the future. They also help to efficiently allocate supplies to the locations where those supllies will be most needed. So, for example, if speculators correctly anticipate that supply will fall short of future demand, they buy at today's lower prices and sell at tomorrow's higher prices. Conversely, if speculators correctly forsee a contraction of future demand, or a swelling of future supplies, they will sell (short) at today's high prices and buy (to cover) at tomorrow's lower prices. Of course, successful speculators tend to accumulate wealth, thereby amplifying their influence in the market; while unsucsessful specualtors lose money and market impact. So, in a free market, all incentives favor well-informed speculation and efficiently directed market prices.
Unfortunately, incentives for speculators in today's markets are warped by the pervasive influence of coercive state intervention. The Federal Reserve System constitutes the most profound distortion, by virtue of the fact that everyone knows this institution exists only to inflate the supply of money. During the expansionary phase of the easy-money boom, when the monetary base is growing steadily, stock and commodity prices are bid rapidly higher, because the newly created money first enters the financial system through big commercial banks that act as primary dealers for US debt. The new money flows into the securities and commodities markets right out of the gate, as Wall Street speculators bid prices higher in anticipation of an easy money boom.
Whenever the Fed slows its expansion of the monetary base, as has been the case since 2004, the boom eventually runs out of steam and securities/commodity prices tend to fall, albeit reluctantly and grudgingly at first. For the conditons that financed rising speculative demands have changed. That is, when the growth of new money slows or stops, the demand for commodities and securities falls well short of the levels that bullish speculators were counting on when they placed their bets.
Unfortunately, the Fed's malignant influence on the economy has fostered a great deal of uninformed speculation. Most speculators assume that because the Fed is in the "inflation business", that prices of virtually any asset class are destined only to rise, not as a consequence of particular Fed policies, but as a Law of Nature. One need look no further than the real estate bubble, propelled in part by "nothing down" speculators who lined up to borrow to buy overpriced houses and condos. Meanwhile, Wall Street speculators have made big bets on various long positions, reasoning that ever-rising asset prices are the natural order of things, and that if a "slowdown" mysteriously emerges, the good bankers at the Fed will very quickly step in to assure that prices--and speculative profits--resume their upward march. When these guys suspect that the Fed might be too slow or too timid in "greasing the wheels", they immediatley begin to grouse about the Fed's "neglect" of its primary responsibility, which they believe is to send stock and commodity prices ever higher.
This partly explains why commodity and stock prices were probably bid far too high during the credit expansion, and why both have quite a ways to fall before the next round of aggressive Fed monetary inflation.
Although speculation has misdirected investment prices, the culprit in this drama is not the free market, with rational profit-seeking by calculating speculators. No, the blame falls on the malignant influence of central banking, and other forms of violent intervention in the market, which misleads and corrupts specualtors.
Published: April 24, 2008 5:22 PM
Why? Was was it about my post that was hard to understand Inquisitor? Someone buys a gold coin, the buyer does nothing, market forces change, the buyer finds their gold coin is worth more despite doing nothing. Since the gold coin buyer didn't mix any labour with gold coin why should his possession be worth more (or less depending on the gold price)? Therefore an increase in the gold value would be a positive externality to him. Conversely, some guy buys up aluminium ingots in the late 1800s, another guy figures out how to extract aluminium from bauxite, floods the market with cheap aluminium, the first guy now has near worthless bars of metal. How is this not a negative externality to the aluminium-bug? He didn't do any to his stash of aluminium yet it is now near worthless. Is that not a negative externality on par with a farmer who had a water supply polluted by a factory upstream?
For my two cents the real people would be considered more of the repairing type. They see an economy in a slump and mix their knowledge and labour in, say, a down-and-out business and make it profitable again. The day-to-day definition of 'speculation' is one notch above gambling. If a speculator is mostly guessing about changing market forces and hoping to buy low, hold, sell high, without mixing any labour then they're just gamblers hoping they have found a positive externality.
Published: April 24, 2008 10:24 PM
it's always a laugh listening to the evil commodities "speculators" being lambasted. critics have never played in markets, otherwise they'd know how uncomfortable it feels to be stuck in a losing futures trade with no liquidity. very few futures contacts are exercised for delivery, so speculators' influence is transitory. hoarders only serve to ration a scarce resource. the fundamentals rule, and roaring agricultural product prices have got to seen in context - the nineties saw some of the lowest real prices for two centuries (coffee and cocao come to mind).
about 95%++ lose in the futures game. typically the little guy has a whirl, loses a modest sum, and never comes back. his money is scooped off the table by the few competent players (the other 5%), who have the right mix of knowledge and personal character attributes, and who do the world a service by quickening price discovery.
interesting how it's patriotic to buy houses (govt even helps), but evil to buy corn.
chad says:
"diamond producers make sure that they only allow so many diamonds into the marketplace every year in order to maintain their high price in the marketplace. It is their coordinated, "artificial hoarding" of diamonds along with an extremely effective advertising campaign that maintains the high market price of diamonds."
cartels are inherently highly unstable, i can remember a time when de beers looked almost certain to implode ( early nineties??). also, argyle diamonds now competes outside of the de beers cartel with its pink diamonds (the rarest form of diamond yet), and is trying to pitch its yellow diamonds at a less wealthy buyer. (figures, as they have a piss-like colour).
bhp billiton also chose to sell their ekati jewel-grade stones direct from their own agency in antwerp.
diamonds will always be a beauty-in-the-eye-of-the- beholder-story, so it's natural that de beers spends a fortune to improve the products' cache.
Published: April 25, 2008 5:27 AM
Sam, no, it was rather that your post made no sense, that is what. You said the person did "nothing". Clearly, as is evidenced by nearly every single post here, it isn't "nothing" that is taking place. Speculators do far more than "nothing". I guess you missed the bit regarding potential losses too.
Published: April 25, 2008 8:11 AM
Speculation is where smart people prepare for the future while stupid people live for today.
Stupid people resent smart people when they have to pay for their stupidity, and they call it profiteering and accuse their benefactors of being criminals.
Published: April 25, 2008 9:45 AM
Speculating is but another form of profit minded artificial turbulence that is injected into economic processes. If speculation did not occur, prices may go up in the future, or they may not; however, prices do go up in the present. Speculation drives prices up needlessly. There is no guarantee of economic benefit in the future.
Published: April 25, 2008 3:50 PM
john says:
"Speculating is but another form of profit minded artificial turbulence that is injected into economic processes. If speculation did not occur, prices may go up in the future, or they may not; however, prices do go up in the present. Speculation drives prices up needlessly."
this is a nonsense. prices are merely the interplay between supply and demand for commodities. to the extent that the speculator can anticipate future supply/demand, he is rewarded. for every winning trade there is a losing trade. money merely is passed from less able to more able speculators.
the market benefits from speculators through more liquidity, but importantly, society at large benefits, too. speculation helps re-align prices to reflect changing supply/demand more quickly than would otherwise be the case. accurate pricing avoids unnecessary waste of resources.
Published: April 26, 2008 12:15 AM
Please elaborate Inquisitor. I can see how someone who takes a failing business, mixes his knowledge and labour to make it profitable did something. I can see how an sensible investor who injects capital into a growing businesses does something. But someone who simply buys something on the hope that it might up or down in value? Likewise does a gambler perform a necessary function? Both engage in an activity which they hope will become profitable but don't do anything but hope and pray.
Published: April 26, 2008 1:40 AM
to tlwp sam:
speculators assume pre-existing natural risk; gamblers man-made risk.
speculators perform an invaluable task of adding liquidity to markets, assisting commercial hedgers, and most importantly, bringing on a speedy realignment of prices to reflect anticipated changes in supply/demand.
the more accurately prices reflect real supply and demand, the less wastage occurs. the ussr was a classic example of the wastage that occurs when prices don't reflect real scarcity. only real markets can perform that function, and speculators are a vital part of the price discovery process. what is a speculator anyway? commercials often take positions greater than their underlying trade, having superior knowledge to mug punters.
those who approach commodities with luck alone on their side will be cleaned out quick. those who apply themselves and who have the right psychological make-up can do spectacularly well. they are few in number.
i'm not against gambling, but see it as having entertainment value only.
Published: April 26, 2008 7:34 AM
Successful speculators are only rewarded if they're correct, otherwise they suffer losses - repeated success indicates planning and good judgement. I'm not sure how this is analogous to gambling, except in that in both areas there's uncertainty involved. How speculators benefit the market has already been adequately demonstrated above.
Published: April 26, 2008 7:36 AM
Sam, since value is always determined by how much other people are willing to pay for a good or service, all gains and losses are based upon external factors. The only thing the individual can do is decide how his values compare to everyone else's values. The investor/speculator, of course, is not merely comparing his values to other people's values, but also how he expects that relationship to change. The gambler, too, is affected by external factors, but, assuming honest gambling (no cheating), then those factors are not other people's values, but luck or the odds.
But trades are two-way exchanges. The guy who bought the gold coin and then held it isn't exactly "doing nothing", that gold coin has to be stored somewhere, but he can't benefit from its increased value until he actively sells it. Thus, the fact that other people have increased the value of gold means nothing to the coin holder until he decides to act on it and engage in trade.
Externalities are usually considered to be cases where third parties to a transaction are affected by the transaction in spite of their non-involvement in it. The gold coin holder cannot benefit from the increased value of the gold coin except by engaging in a transaction, and thus, this cannot be considered a traditional externality.
Published: April 26, 2008 10:58 PM
There's an article about speculators on Bloomberg that I can't make heads or tails of. I'm not saying I disagree with the conclusions. I simply can't figure out what he's going on about. I get the feeling that there's something there that I should know, but I haven't a clue as to what it is. Can someone translate this into English?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDZej7GJjpjM&refer=home
Published: April 28, 2008 6:07 PM
I can see what some people are saying here that there is a certain line where helpful speculation becomes something more sinister.
If one company decided to buy all of a certain resource and hold it until all the firms that relied on that resource went bankrupt, and then proceeded to establish a monopoly position in that market, efev for a limited period, then this could be considered to be against the good of the public because it causes too much disruption.
There must be a line where speculation becomes wilful damage to the economy or even one firm that can be established by the fact that their decisions are not what a "rational market participant might undertake. This threshold would need to be sufficiently high to not deter the regular speculators however.
Published: April 29, 2008 6:39 AM
Speculators perform an absolutely necessary social function:
1. They transfer current information about prices much more quickly thereby enabling faster resource allocation decisions to be made by the market;
2. They look far out into the future and try to pick up trends before regular market participants could. For example there are a large number of foreign exchange researchers serving businesses but there is an even greater number still working in banks speculating based on their research. They ADD to existing market research and therefore improve the ability of the market and all it's participants to predict trends.
Who told us Gold was going to go up? Speculators
Who told us Oil was going to go up? Speculators
Who told us the dollar was going to go down? Speculators
They help alot.
Published: April 29, 2008 6:45 AM
Some people need to get a clue. There is one thing only that is driving commodity prices. GREED! Speculators, i.e. major investment and banking institutions, have been destroying one industry after another just to make a buck. From the internet run-up and bust to the housing market boom and bust to the current commodities market fiasco. These companies and people have no moral compass and the mighty dollar is their only concern. They have no concern for the lives and economic disasters they leave in their wake as is evidence by their movement of their money into the commodities market as every average person is left to suffer the consequences of their actions in hyperinflating the housing market and the incredible abuses of the credit markets. Unfortunately, now they have found a new market to artificially run up prices with the sole purpose of getting out at the highest point. They have systematically controlled prices and their own profits in each of these examples I have stated without any connection to the reality of supply and demand. To argue that it is a supply and demand issue only plays into their schemes and ignores one key aspect. If supply and demand are eventually affected in these markets, it is because of the speculation and fear mongering tactics they use to get richer. The problem is that nobody needed the internet and people do not have to own a home but we do have to eat and get to work. This whole mess is a sad commentary about how an ever increasing lack of personal and corporate moral and ethical standards has given way to pure greed. Unfortunately, this time it affects the most basic necessities of our existence as human beings.
Published: May 14, 2008 11:41 AM
"Some people need to get a clue."
This applies to the above too.
Published: May 14, 2008 11:58 AM
So, Inquisitor, is it your position that the billions/trillions of dollars that flowed into the housing market artificially hyperinflating prices and creating a false sense of demand/shortages based upon fear that prices would be pushed even higher and out of the range of affordability for most people is not now the same money that is artificially inflating the commodities market? Is it your position that this much money flowing from one area of investment to another does not have the ability to create a false and hyperinflated price for these commodities that is not actually aligned with real supply and demand? Are you saying that the people that buy and trade in bulk in these markets do not have any say so or ability to control supply and demand? Since the term "futures" market by definition is considered speculation, isn't it highly dangerous for everyone to base prices on a guess about the future since we have no way of knowing what it really will be? Can't speculation by the powers that control all economics, i.e. banking, insurance, government, actually change how people act and react in the future thus bringing to fruition the anticipated results of their own speculation for their own personal financial gain and benefit? I am not against capitalism or free markets but there needs to be a real correlation between prices and supply and demand and not just guesses about what parameters will be in the unknown future. Certainly, there are various past performance and current conditions indicators that one may use to perceive changes in the market that can benefit one's portfolio but shouldn't we always weigh the possible effects of our actions on society and, more importantly, our fellow man? I don't think that is too much to ask for, is it? Aren't people, their livelihoods and the ability to feed their families more important in the whole scheme of things? We cannot keep driving up prices in areas considered basic human needs by allowing the powers that control money flow and dictate government policy to set and make their own prices thus lining their own pockets at the detriment of most people only to move on to another market after they have milked the previous one dry and leave the rest of us to deal with the aftermath, destruction and consequences of their actions. Actions that have no consideration for the greater good and are driven solely by greed. Prices cannot continue to go up or be driven up or how will our children be able to afford to live. Consider this: In California, the average entry-level home price is around $500,000 but only 17% of all people that live in California are able to actually afford an entry-level home based upon their income. What kind of home prices will our children or grandchildren have to deal with? If we keep going, will an entry-level home one-day be $1,000,000? Personal incomes will never be able to keep up with this level of inflation. Speculation without historical or current conditions at its foundation seems to be the increasingly used basis for driving up prices and fear, which drives up prices even more, in one market after another. We cannot allow this to go unchecked and it is time to reign in these practices and those that propagate them.
Published: May 14, 2008 2:03 PM
Austrian Business Cycle Theory. I'll say no more.
Published: May 14, 2008 2:27 PM
First of all, this is the first time I have even been on this site. I am not familiar at all with the theory you stated or if it even exists. Even so, basic observation of past and present events seem to bear out my comments although I am open to listening to any reasonable debate of my comments and these ideas in general. So, please don't take my comments or even questions that I posed in the wrong way or attitude. If you, Inquisitor, or anyone else can make a case against my observations, I welcome your knowledge of the subject. That does not mean that I will agree with you but I will consider what you say. But, you have to admit Inquisitor that your last two comments did not really provide any alternative answer to combat what I have stated. In closing, I will say that I probably should not have started my first post with the statement, "some people need to get a clue, so please accept my apology for this unnecessary and unfriendly statement. I look forward to reading some of your comments especially if they specifically address some of my comments, questions, or observations. Have a great day!
Published: May 14, 2008 3:15 PM
If you don't even know what this site stands for, or the underlying theoretical reasoning behind the articles why post here? I'm not here to educate... if you want to see what it's about, look into its massive library of online resources.
Published: May 14, 2008 5:07 PM