Bobbi:

I can't seem to get to your 1st article through the link you provided. Can you please show a different route because I'd really like to read it. Thanks.

stormy,

Try this one from a different source.

Bobbi 

When sales of futures exceed the actual amount of the commodity, there's trouble. Too much temptation to manipulate the actual fair market value of the commodity when there's billions more in futures than actual product on the market.

Sooner or later there's a bubble bust, but these things can last a long time. 

 

"When sales of futures exceed the actual amount of the commodity, there's trouble."

Yes! Why is this allowed?

Bobbi 

Is this what the Investors really want?

LOL.. It's called the " Free Enterprise/Market System"  and 'Capitalisum' at it's finest!

You think this is a Fair and Equal business? It's Dog eat Dog..just like owing anyother Business..and ' Whatever the Market will Bear' is the name of the game..it's all Greed...esepcailly when some HS drop out wants $15 Hr to be a Clerk or some Factory worker with a 8th grade education wants $30 hr, per their Unions..

Eventually? It will go by the way of the Finance and Airlines and other industries... Need to be Re -regulated to some degree .

Just like our parents told us, we tell our Kids> "Gots to get a Degree to get a Decent job and afford to LIve in the Burbs. Let the Poor live in the big ciites and Kill each other"

and yes, we are already living in what is called " Gated communities" bobbi..

Eventually Our Whole Town is becomming a " Gated Community" as many in the Burbs Are..

It's a shame, but that's life in a Free Enterprise/Capitalistic Society..

It's better than A dictatorship or communisum isn't it?

Speculators, or at least successful speculators, are extremely ethical.  A speculator is someone who demands (buys) what nobody wants, just about the time they are ready to throw it away (that's the "buy low" part), and supplies (sells) what everybody desperately wants, just when they most want it ("sell high").  Successful speculators make their living by correct prediction of future demand, not by price manipulation.  If it wasn't for speculation, there would be NO demand for some things when they are plentiful, and NO supply for some things when they are scarce.

Let's start with an example from food... suppose there is a *great* crop of wheat this year.  There is more wheat than anybody can use, and so the price drops like a rock.  Somebody however goes, "wait a minute, that was an unusually good crop, it's not always like that" and buys a bunch of wheat to resell later (that's your speculator).  Next year, the weather is terrible, and there is a poor crop of wheat, but - surprise - there is a normal amount of wheat for consumption, because the speculator is now selling.

Thus the "job" of speculators is to make money by correctly predicting variations in supply and/or demand and EVENING THEM OUT.  Speculators who don't do this, don't stay in business for very long.

Speculators also perform two other important functions related to this.  

One, think about who the speculator who buys wheat is competing with for wheat when he buys when there is excess supply - it is probably somebody who doesn't want wheat very much, and is buying ti just because it's so damn cheap - maybe as a substitute for another kind of animal feed that is normally preferable, or as mulch/fuel/alcohol/whatever - ie, he preempts a marginal use.  But during the period of scarcity, the speculator is selling to people who really want it, perhaps for human consumption - thus supplying a critical use.  Preempting marginal uses in favor of critical uses is a good thing.

Two, think about the farmer who grew wheat during the great year.  Normally, he'd be in trouble, because even though he has a lot of wheat, prices are so low that he's actually going to lose money.  That is, until several speculators step in and bid prices to close to a normal level.  Without the speculators, the farmer might decide to grow something else (maybe soybeans) next year, thus exacerbating next year's shortage of wheat.  But with the speculators, the farmer is assured of a much steadier price level than instantaneous supply and demand might suggest, and so he keeps growing wheat.  Thus speculators help both producers and consumers make longer-term plans assuming a reasonably steady price level and availability level of things that normally would fluctuate wildly.  Price stability and large stock on hand is also a good thing.

I take some pride in being a successful speculator.  Right now (and since a couple of years ago) my big commodity speculation is OIL.  I believe that a critical shortage of oil is a very possible scenario, for any number of reasons (some given by Matt Simmons, some others) and I have done my part today to "stockpile" as much oil as I reasonably can (check my portfolio in hands-on, which mirrors my real life portfolio).  In doing that, I have surely done my small part to raise prices, and also to encourage oil producers to spend more on exploration/drilling/upgrading facilities, and consumers to conserve and look into alternatives, thus making any future shortage somewhat less severe.  If a shortage does occur, I (and other speculators) will be pretty much the only people with extra oil to sell.  You may hate the high prices, but at least you'll be able to commute to work; and I will make a bunch of money.  If a shortage does not occur, I will lose a bunch of money.  I only make money if I can help people, how is that not ethical exactly?

Hi rayden,

The picture of speculation you paint is indeed very pretty. I believe your scenario is, in fact, pretty much the way it has worked for a century. You will, however, have a hard time convincing me that those who are buying rice, wheat and corn ( or oil) now are buying because the commodities are " just so damned cheap " .

The proliferation of dollars into hedge funds has increased from something under a trillion dollars in 2004 to almost 3 trillion by the end of 2007. These dollars have to find a home. It seems to me that many of these fund managers, or their computers, all chase the same asset. I believe this speculation creates inflationary pressure, causing particular prices to increase above their true value (real value - adjusted for inflation) simply because the speculative purchasing artificially increases the demand. Don't you agree that price rises due to speculative purchasing causes further speculative purchasing in the hope that the price will continue to rise? Isn't this how "bubbles" form?

I'm not convinced getting between farmers and consumers, taking money from both sides, is really  as altruistic as you claim.

Bobbi 

rayden,

you seem to be buying a lot of oil.

Are you going to start your own private reserve? 

The futures market was meant for a producer and consumer to ensure supplies.

Every system produced by man will be gamed.

So do not pretend that speculators are doing "US" a favor by guaranteeing the correct amount of a certain commodity is available. IT IS WHAT IT IS!!! GREED.

 

The problem I have is when speculators lose aand go crying to government for a bail out and get it.

I remember one woman had bought many, 3 or 4 houses, with no money down liar loans and she could not make her payments and she wanted to know what government was going to do to "HELP" her out.