Posted on 05/23/2008 9:32:18 PM PDT by gleeaikin
The global financial system these days is beginning to look like a giant Whac-a-Mole game--when we think we've knocked down one speculative bubble, another one just like it pops up.
The latest is the commodities bubble--everything from oil and natural gas to gold, copper, wheat and rice....Like the credit bubble, this speculative bubble in commodities has badly distorted the workings of key markets and sectors of the global economy....this bubble is creating vast new wealth for some, including brokers, traders and investment houses who have gorged on fees and trading profits.
The difference this time, however, is that even before it bursts, this bubble is causing economic discomfort for households and businesses around the world, and misery for hundreds of millions of hungry people who suddenly cannot afford a bowl of rice or scrap of meat. Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-user....But perhaps the biggest push came from pension funds, foundations and university endowments.... To meet the needs of these investors, Wall Street and Chicago's commodities houses came up with all sorts of new vehicles, including exchange traded funds, index funds, and structured investment vehicles--the commodities equivalent of mortgage pools and asset-backed securities.
The [Commodities Futures Trading Commission] last week decided to hold off on plans to raise the limits on how much any one fund can speculate on any commodity. I suspect...the industry, which has always called the tune at the CFTC, fears a backlash in Congress that could usher in an era of tough new regulation of commodities trading as part of a broader package of financial regulatory reforms.
(Excerpt) Read more at washingtonpost.com ...
The business press is now full of thumb-sucking articles about the “commodities bubble.” Is it in fact a bubble and how long will it last? If it is in fact a bubble, it will eventually burst. It may, however, reflect some long term adjustments to supply and demnand.
Unfortunately, since the purchasers of these instruments are not the end users like refineries or grocers, this has nothing to do with supply and demand in the conventional sense. I hope it does burst and get these speculator types out of this market.
Dang me, go get a rope and hang me! Somebody finally figured out these modern vampires are sucking the life out of America
just to get rich. Perhaps they might reflect on the French Revolution and its result.
Just to make myself clear, I am not against someone getting rich when they are producing, or providing a good or service that people need. I am against pure speculation just for getting rich. Like these guys who were buying up companies, spliting them up, selling off parts, and could care less who they hurt or if the company continued to be productive.
> Just to make myself clear, I am not against someone getting rich when they are producing, or providing a good or service that people need. I am against pure speculation just for getting rich. Like these guys who were buying up companies, spliting them up, selling off parts, and could care less who they hurt or if the company continued to be productive.
The service provided by the speculators is called “liquidity”. Without the speculators there is no market. Speculators that purchase company shares in the expectation that they will be able to resell them at a profit create stock market (and 401K plans and IRAs, etc.). Those who trade commodities create commodities market. When a farmer would like to get a guaranteed price for his product prior to planting it, he turns to a speculator. When an airline wants to get a guaranteed price for the fuel it will need next year it turns to a speculator. The speculator earns his keep by assuming the risk others do not wish to carry. Some times he wins, some times he loses.
BTW, Karl Marx referred to speculators as “parasites”.
Here is my most recently posted thread. I know this isn’t exactly GGG or Catastrophism but I thought you might find it interesting since it is affecting several billion people, including you and me. Actually, maybe it is Catastrophism, at least a little. :-)
I hope you read the whole article as what is happening here is not business as usual. This is a whole bunch of new speculators who have entered the commodities market in the past year or two. It is a distortion of the market which is having negative effects on just about everyone including the farmers. These are the same guys who were doing things that helped distort the mortgage market which has now ended up with the forclosure bust.
Do you have the faintest clue about regulation in futures mkts? It sure as the devil doesn't sound like it, mate.
Just what these mkts need: more ignorami.
And, before you start in, be advised that I've traded futures for 36 years, been a broker, runner, a desk man, a back room specialist, margin clerk, and compliance officer.
I've written extensively on the futures industry, some hundreds of articles and a book ('Trading Options to Win', John Wiley & Sons, 2003). In 1974, I and several colleagues were specifically requested to confer with Tom Foley, who was at the time chairman of the House Agriculture committee, and was drafting the 1974 Commodity Futures Trading Act.
Now, go right ahead. Parade your ignorance about ''unregulated, unsupervised.''
I can always use a good laugh.
Just like the rest of us in the futures industry, this group NEEDS to be regulated. Their excesses to date would have made Jesse Livermore blush.
Very nicely said. My compliments, FRiend!
Paper clips.
The answer is paper clips.
Buy as many as you can now, the price will be rising! I’m tellin ya, fill your closets. When the SHTF, they will be invaluable. Life saving even! I’m series!
;^)
I don’t know if you read the whole article, but “unregulated, unsupervised” is what I got out of the author’s statement: “But what turned a bull market into a bubble was the sudden arrival of large numbers of new investors and an array of new investment vehicles, many of them involving derivative instruments traded outside the confines of regulated markets.”
Can you tell me a better description of the above than “unregulated, unsupervised” if so, I will be happy to use. Also, I am wondering if your extensive experience in the futures market includes the past two years, when all these bubble producing activities were introduced. I admit that I don’t know a lot about this market, but how relevant is your experience of 34 years ago to these new conditions? If you could explain to me more about these new investment vehicles which he mentions in the article, I would love to learn more about them.
FWIW, your first mistake was posting a financial article from the Washington Post analyzing current market conditions. The second mistake, was commenting on said article. Third, a mini-debate with SAJ. Fourth, .....
The group you say NEEDS to be regulated is probably what I and the author were referring to.
Also, I have been looking more into the oil market than the food market, and particularly the oil ETFs. Try Googleing USA OIL ETF for a number of interesting links. Food, as you say may have started earlier, but the oil change is mostly the past two years, and especially since the “supersized” instruments were made available to the institutional investors. See this 2007 link for more info: http://www.247wallst.com/2007/01/supersizing_the.html
You’ve heard the term “peak oil”.
I’m not sure I believe it, but that’s another thing.
Peak oil might imply peak food.
The author is on the staff of the Washington Compost, and if that's not enough of a clue for you, you have my sympathy. You'll need it.
In the past two years, I've traded actively, as always, attended the usual conferences, screamed at a couple of Congresscritters for being jackasses on a couple of regulatory proposals (geez, they get more and more stupid over time, unfrickinbelieveable!) and developed a website dedicated to historical and seasonal research in futures mkts. Visit Time & Timing for all the historical information about commodities pricing that you care to see in 60 major markets, in US and Europe. Sorry, no Asian mkts, technical problems in including those mkts.
My 'experience' continues right up to the present date, m'friend. We saw this same type of game, on a smaller scale, in 1979-80. Remember Bunker Hunt and his machinations in the silver mkt? Same deal as here and now, but w/o the funky ''products'' invented by slimeballs like Goldman, plus the fact that Bunkie had an ego as big as all outdoors and WANTED publicity (arrogant fool!), whereas the big specs today want to avoid publicity at all costs if possible.
As Mark Twain once quite trenchantly noted, ''History doesn't repeat itself, but it does rhyme.''
There have been several very fine articles in the last two weeks on these new index products, one especially good one by a man named Masters, with whom I've a slight acquaintance. Knows his onions, for certain, and has excellent practical suggestions for chasing the overparticipating specs (read: cheating MFs) out of the energy mkts. I don't have a link to it at the moment, but I can surely dig one up over the weekend.
:’) Thanks gleeaikin! Not really a catastrophe, merely a disaster. Catastrophe has pieces of bigger disasters than this in its crap. ;’D
But seriously, this is pretty interesting. I think you (hubel458) will find it pretty interesting as well.
There’s A) too much money around, and B) it’s in the hands of herd animals who produce bubble after bubble, because C) it always works in the short- and middle-term and D) is easier than actually doing the research and diversifying portfolios which in any case will E) be really boring and lackluster compared with the bubbles.
Peter Lynch wound up taking an early retirement from managing Fidelity Magellan back when he was at the top of his game, while he still looked like the man with the golden arm. The money regularly deposited in 401K and IRA and mutual fund accounts had to go somewhere, and had as much as anything credit for that lovely long bull market.
http://www.freerepublic.com/focus/news/2017389/posts?page=67#67
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