Speculation in the Commodity Markets Good or Bad?

[Al_Masetti]

Yes, stocks can be manipulated – most recently we had a case where a company created another company, assigned all losses to that company, and thus showed the “mother” company as being more profitable that it was.

But speculators cannot do that.

The biggest cheating I know of in the commodities market was where a company bought futures on both sides (equal amounts, one betting on higher prices, the other on lower prices) then assigned the winning account to a politician.

Gosh!

I am shocked … SHOCKED… etc.

[Betcha you can’t tell us the name of that politician, neither.]

 

[Ridgerunner]

Yes, stocks can be manipulated – most recently we had a case where a company created another company, assigned all losses to that company, and thus showed the “mother” company as being more profitable that it was.

But speculators cannot do that.

The biggest cheating I know of in the commodities market was where a company bought futures on both sides (equal amounts, one betting on higher prices, the other on lower prices) then assigned the winning account to a politician.

But it took someone’s real money to do it. I met the guy who was the biggest loser on the other side of that transaction. The whole deal was almost entirely based on his money alone. Turned him from a wealthy man to a poor one. He lost a lot more than the politician gained. In retrospect, I’m sure he would have been happy to have just written the politician a check.

That’s part of the problem with political “payoffs”. They’re a lot more expensive than the “net payoff” to the politician. In some ways, straight up corruption would be a lot less expensive for everyone.

 

[vern_humphrey]

Gosh!

I am shocked … SHOCKED… etc.

[Betcha you can’t tell us the name of that politician, neither.]

No – but I can say she is one of the contenders for the nomination of her party right now.

 

[vern_humphrey]

But it took someone’s real money to do it. I met the guy who was the biggest loser on the other side of that transaction. The whole deal was almost entirely based on his money alone. Turned him from a wealthy man to a poor one. He lost a lot more than the politician gained. In retrospect, I’m sure he would have been happy to have just written the politician a check.

That’s part of the problem with political “payoffs”. They’re a lot more expensive than the “net payoff” to the politician. In some ways, straight up corruption would be a lot less expensive for everyone.

You have a point. Certainly the attempt to “reduce” this sort of thing has led to the destruction of the First Amendment right of Freedom of Speech – to the point that you and I cannot mention the name of a candidate on this forum.

 

[peregrinus_WA]

U.S. oil probes focusing on price manipulation: report

NEW YORK (Reuters) - A U.S. regulatory probe into potential oil-market trading abuses is focusing on possible short-term manipulation of benchmark crude prices and the use of information related to important oil storage tanks to influence prices, the Wall Street Journal reported on Friday.

The report comes a day after the Commodity Futures Trading Commission, under pressure from U.S. lawmakers to crack down on speculators they blame for pushing energy prices to record highs, said it would step up market surveillance.

Full Story

Evidence that I may be correct. However, they should not stop at oil. They should also look at the grain markets. Speculators have turned the commodities markets into a den of immoral behavior.

 

[vern_humphrey]

Evidence that I may be correct. However, they should not stop at oil. They should also look at the grain markets. Speculators have turned the commodities markets into a den of immoral behavior.

No, it’s evidence the Commodity Futures Trading Commission is under pressure from U.S. lawmakers to find that someone else, not Congress, is responsible for the mess we’re in.

 

[Texas_Roofer]

Let me try to explain this to you: image a small town with only 2 gas stations and let’s set the price of gas at $3.80. One owner says to the other owner I have a plan to make more money, tomorrow you set your gas price to $4.25, and I’ll set mine to $4.00. I think people will panic and buy all my gasoline(@ $4.00 which is $0.20 too high). Next month we can do it again with you getting the sells…

This is what you are reading except 1) The traders are selling futures instead of gas, and the panic is based on 2) false inventory data. The false data was designed to back the futures panic. Had real data been issued higher prices would increase inventories thus resulting lower price, thus lower futures. While lower prices would decrease inventories, thus resulting in higher prices, and thus higher futures. The lie is to report higher prices, lower inventories, thus resulting in even higher prices, thus even higher futures. Which can only work until the true inventories are known, usually within days certainly within weeks

hope that helps

 

[vern_humphrey]

Let me try to explain this to you: image a small town with only 2 gas stations and let’s set the price of gas at $3.80. One owner says to the other owner I have a plan to make more money, tomorrow you set your gas price to $4.25, and I’ll set mine to $4.00. I think people will panic and buy all my gasoline(@ $4.00 which is $0.20 too high). Next month we can do it again with you getting the sells…

This is what you are reading except 1) The traders are selling futures instead of gas, and the panic is based on 2) false inventory data. The false data was designed to back the futures panic. Had real data been issued higher prices would increase inventories thus resulting lower price, thus lower futures. While lower prices would decrease inventories, thus resulting in higher prices, and thus higher futures. The lie is to report higher prices, lower inventories, thus resulting in even higher prices, thus even higher futures. Which can only work until the true inventories are known, usually within days certainly within weeks

hope that helps

Now let me explain:

In your analogy of the gas station, the owners of the stations own the gas. The “speculators” own nothing but paper. And since paper is cheap, no one can corner the market on paper!!

And the only way for a man who thinks prices will go up to buy paper is to find someone else who thinks prices will go down. One of them has to be wrong – and that person will lose as much as the other makes. The commodities market is a zero-sum game.

Now OPEC – the countries that own the oil – are a cartel. They can force up prices by limiting supply. But the speculators can’t.

 

[Texas_Roofer]

Now let me explain:

In your analogy of the gas station, the owners of the stations own the gas.

One owns tomorrow’s gas but not next month’s gas

The “speculators” own nothing but paper. And since paper is cheap, no one can corner the market on paper!!

the object is not to corner the market the allegation is conspiring to mislead information, in the gas station analogy the panic was a designed trick. In the newspaper article it is alleged inventories are bring misrepresented

And the only way for a man who thinks prices will go up to buy paper is to find someone else who thinks prices will go down. One of them has to be wrong – and that person will lose as much as the other makes.

the allegation is a conspiracy to trick the buyer by misrepresenting inventories

The commodities market is a zero-sum game.

well yes but one needs to understand why commodities exist, the market provides a steady cash flow to cyclical markets as grain. By selling 5% of the crop each month(even though the crop does not exist yet) the producer has cash throughout the off season.

Now OPEC – the countries that own the oil – are a cartel. They can force up prices by limiting supply. But the speculators can’t.

OPEC does not need futures, drillers need futures to produce cash flow when the drilling operations are causing negative cash flow.

 

[vern_humphrey]

One owns tomorrow’s gas but not next month’s gas the object is not to corner the market

But in your example, they own the gas when they raise prices – and (since there are only two station, and they are in collusion) they have cornered the market.

the allegation is conspiring to mislead information, in the gas station analogy the panic was a designed trick. In the newspaper article it is alleged inventories are bring misrepresented the allegation is a conspiracy to trick the buyer by misrepresenting inventories well yes but one needs to understand why commodities exist, the market provides a steady cash flow to cyclical markets as grain. By selling 5% of the crop each month(even though the crop does not exist yet) the producer has cash throughout the off season.

The only people tricked are the speculators. When the product is sold, it is worth what it sells for, whatever that may be.

OPEC does not need futures, drillers need futures to produce cash flow when the drilling operations are causing negative cash flow.

Refiners and gas stations need futures – to smooth out the uncertainties of the market.

 

[ribozyme]

The greatest speculator that ever lived was Joseph in the book of genesis. He bought grain during the seven years of fat, and sold it during the seven years of lean. Think of where Egypt would have been without his speculation?

No, that’s George Soros.

 

[peregrinus_WA]

Crackdown urged on speculation in commodities markets

US regulator CFTC calls for curbs on oil trading in London

 

[vern_humphrey]

This escalating rhetoric against speculators is starting to worry people with years of knowledge about how commodity markets work. Because without speculators, they note, these markets simply do not work at all.

Speculators, people willing to risk their capital in search of high profits, are so central to healthy commodity markets, they say, that the broad-brush restrictions now being considered could inadvertently damage a market that is already under pressure from rising global demand for food and fuel.

Even in Washington, there is widespread agreement that no single factor is responsible for rising food and energy prices. The hungry, high-growth economies of India and China are fundamentally affecting worldwide demand, while uncooperative weather, and government policies on trade and ethanol, are among the many factors affecting supply.

And commodities, priced in dollars, tend to rise in price as the dollar weakens, making commodities a haven for investors fearful of future inflation.

Congress, having created the problem by blocking off almost all domestic oil production, is now willing to completely destroy the economy to deflect the blame from themselves.

 

[Texas_Roofer]

Crackdown urged on speculation in commodities markets

US regulator CFTC calls for curbs on oil trading in London

No one is sighting a problem. There are only 3 types of buyers 1) Speculators, 2) Hedge buying, and 3)users. Futures only exist to help the producers by allowing sales of future products, or contracts on future products. Almost all these sells are to speculators as there are fewer needs to hedge. Users can only buy when the product exists so users who buy futures are speculators. In short either you eliminate the futures market or you allow speculators to buy there. There is no inbetween.

 

[vern_humphrey]

No one is sighting a problem. There are only 3 types of buyers 1) Speculators, 2) Hedge buying, and 3)users. Futures only exist to help the producers by allowing sales of future products, or contracts on future products. Almost all these sells are to speculators as there are fewer needs to hedge. Users can only buy when the product exists so users who buy futures are speculators. In short either you eliminate the futures market or you allow speculators to buy there. There is no inbetween.

And if they eliminate the futures market, they destroy what little stability there is in the economy.

This is called, “Cutting off your nose to spite your face.”

 

[otjm]

So do you guys, or any of you, align with the idea that the only people who should be allowed to speculate on oil futures are those who will actually take delivery?

 

[Texas_Roofer]

So do you guys, or any of you, align with the idea that the only people who should be allowed to speculate on oil futures are those who will actually take delivery?

not me, or any producer, think about the effect – it would be illegal to sell to the highest bidder!!

 

[otjm]

not me, or any producer, think about the effect – it would be illegal to sell to the highest bidder!!

Um, it was my understanding that there was any legality about highest bidder, per se. It was proposed that the only ones who could bid on oil futures would be those who either produced or would be the recipient of the production - so, effectively limiting it to refiners, etc. The concern against the idea was that the futures market for oil would simply go overseas.

to go further, it was presumed that speculators who were in the market for no other reason than the opportunity to “ride the rocket” were the cause, or at least part of the cause, of the hugh escalation in the futures market. Taking them out would supposedly calm down the market as it would leave the suppliers and end users as the only ones involved in futures contracts.

 

[Texas_Roofer]

Um, it was my understanding that there was any legality about highest bidder, per se. It was proposed that the only ones who could bid on oil futures would be those who either produced or would be the recipient of the production - so, effectively limiting it to refiners, etc. The concern against the idea was that the futures market for oil would simply go overseas.

to go further, it was presumed that speculators who were in the market for no other reason than the opportunity to “ride the rocket” were the cause, or at least part of the cause, of the hugh escalation in the futures market. Taking them out would supposedly calm down the market as it would leave the suppliers and end users as the only ones involved in futures contracts.

You are mistaken, though you may well have read exactly what you wrote. Consider if the supermarket was placed on a futures style arrangement, you may want bread and milk today but you cannot have either you have to buy it from a speculator (spot market) because you chose not to buy the future 180 days ago. Will you buy a future today so you can have milk direct from supermarket in 180 days? If you do you are now a speculator, if you do not then you can buy bread and milk off the spot market WHEN YOU NEED IT. So the choice is yours. Generally speculators either believe the current price is too high or too low so they react opposite buying only when others are selling, selling only when others are buying this is the action which stabilizes the market. Before futures either everybody was buying (off season), or everybody was selling (harvest season). Many bumper crops caused financial ruin as the price plummeted. Bad crops could cause financial success as prices skyrocketed. Futures stabilized the market allowing selling and purchases daily.

Today many speculators believe US gasoline is underpriced so they buy contracts. If they are correct they will make profits. If they are incorrect they will lose big money. Either way the market is more stable than if the futures did not exist. In the earlier posts the issue was: were reported inventory levels being manipulated to allow insiders to know truth while public information was incorrect, that would be fraud.

The futures market is not the problem at all. The market allows farmers to sell 5% of the crop each month all winter long when no crop exists, later at harvest time he delivers that ~50% of the crop. If the futures were to high the speculator has losses, if the futures were too low the speculator makes profits.

 

[vern_humphrey]

Um, it was my understanding that there was any legality about highest bidder, per se. It was proposed that the only ones who could bid on oil futures would be those who either produced or would be the recipient of the production - so, effectively limiting it to refiners, etc. The concern against the idea was that the futures market for oil would simply go overseas.

to go further, it was presumed that speculators who were in the market for no other reason than the opportunity to “ride the rocket” were the cause, or at least part of the cause, of the hugh escalation in the futures market. Taking them out would supposedly calm down the market as it would leave the suppliers and end users as the only ones involved in futures contracts.

Dead wrong – it would create a virtual monopoly, since small investors would be crowded out.

You don’t like “Big Oil?” Imagine how much you won’t like “Gargantua Oil!”