Spec-u-la-tion
Jun. 12th, 2008 10:22 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
libertangoIt doesn't get to the really useful stuff until late in the article, but this piece in the New York Times has some interesting insights about commodity markets -- both food and oil:
"“Concern about manipulation is not misplaced,” said Patrick Westhoff, an economist at the University of Missouri’s Food and Agricultural Policy Research Institute. “But speculation doesn’t equal manipulation, and I am concerned that there’s been a confusion between the two concepts.”"
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"The stage of the speculation that is alarming Washington is the commodity futures market, which trades a financial derivative called a futures contract, an agreement for the future delivery of a fixed amount of a commodity at a certain price. The prices at which these futures contracts change hands are the benchmark for pricing commodities around the world.
In essence, speculators are the only voluntary players in the commodity futures markets. They could use their billions to dabble in currency markets or buy distressed real estate or pile up Treasury bonds.
But farmers, miners, oil producers and all the other players engaged in commodity production and consumption — the so-called commercial players — pretty much have to be there. There just are not many other places they can hedge the price risks that arise in their commodity-based businesses.
So speculators become the ballast in the market, making the contrary trades, taking on the risks the hedgers want to shed, reacting quickly when news jolts the markets and, most important, creating liquidity by pouring in enough money to allow everyone to make very large trades quickly without causing wild price swings.
Liquidity is, in effect, the hostess gift that speculators bring to every market party, and without the capital poured into energy markets by institutional investors, prices may well be far higher and more volatile than they are, said Philip K. Verleger Jr., an economist and energy policy consultant who testifies frequently before Congress on energy issues."
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So, that's the real question -- Are these markets being manipulated toward a price that has nothing to do with supply and demand? Or are they reflecting a real tightening of supply even as demand grows? (Bonus question on the oil side: Where are the new discoveries? Note this page, which uses work by Colin J. Campbell, the geologist who founded the Association for the Study of Peak Oil and Gas (ASPO). It appears discoveries peaked in the mid 1960s, and have been in a declining trend ever since, even as demand rises.)
"“Concern about manipulation is not misplaced,” said Patrick Westhoff, an economist at the University of Missouri’s Food and Agricultural Policy Research Institute. “But speculation doesn’t equal manipulation, and I am concerned that there’s been a confusion between the two concepts.”"
*^*^*
"The stage of the speculation that is alarming Washington is the commodity futures market, which trades a financial derivative called a futures contract, an agreement for the future delivery of a fixed amount of a commodity at a certain price. The prices at which these futures contracts change hands are the benchmark for pricing commodities around the world.
In essence, speculators are the only voluntary players in the commodity futures markets. They could use their billions to dabble in currency markets or buy distressed real estate or pile up Treasury bonds.
But farmers, miners, oil producers and all the other players engaged in commodity production and consumption — the so-called commercial players — pretty much have to be there. There just are not many other places they can hedge the price risks that arise in their commodity-based businesses.
So speculators become the ballast in the market, making the contrary trades, taking on the risks the hedgers want to shed, reacting quickly when news jolts the markets and, most important, creating liquidity by pouring in enough money to allow everyone to make very large trades quickly without causing wild price swings.
Liquidity is, in effect, the hostess gift that speculators bring to every market party, and without the capital poured into energy markets by institutional investors, prices may well be far higher and more volatile than they are, said Philip K. Verleger Jr., an economist and energy policy consultant who testifies frequently before Congress on energy issues."
*^*^*
So, that's the real question -- Are these markets being manipulated toward a price that has nothing to do with supply and demand? Or are they reflecting a real tightening of supply even as demand grows? (Bonus question on the oil side: Where are the new discoveries? Note this page, which uses work by Colin J. Campbell, the geologist who founded the Association for the Study of Peak Oil and Gas (ASPO). It appears discoveries peaked in the mid 1960s, and have been in a declining trend ever since, even as demand rises.)
