“Speculators” are NOT some evil boogeyman!
“They” are you and me, either directly or via mutual fund investments, buying scarce resources in anticipation of higher demand in the future.
Do these authors really pretend that “responsible investing” is limited to throwing money away in bankrupt bond issues?
Sorry, but the speculators have grown to such a volume that they can alter prices independent of demand.
During 2008, we were told oil was spiking because of massive demand growth in China. But if you bothered to do any independent research, the demand growth just wasn't there at a level to justify the spike. Meanwhile, it came out just how many contracts were held by speculators.
And then we saw the entire oil bubble pop in late 2008. The suckers had been lined up, lured by the rate of return climbing up the bubble, and then the likes of the investment banks rode the shorts all the way down.
Now the bubble is inflating again for all commodities. Central bank policies are partially to blame - both by devaluating the dollar (which oil is priced by) but also by creating vast pools of cheap money that chase returns - and pouring money into commodities over the last few year or so has been quite lucrative.
A few simple changes could fix this problem, such as higher margin requirements and tighter position limits on exchanges such as ICE, as well as an end to QE. But I don't see that happening anytime soon. Too much money to be made off the backs of consumers around the globe.
Legitimate speculators, like Airline buyers have a place and it makes sense and it helps their industry hedge against disruptions.
"they" in this case are buying a scarce resource "oil futures" in anticipation of selling it for a higher price later. To them, it could be oil, tulips or pork bellies. They are in it to make money by betting long and getting out on the upticks.
Since the CFMA in 2000, energy and financial futures products have been accorded special exemptions from some of the rules that have been in place in commodity markets since the 1920’s.
Subsequent to CFMA, we have now had two clear, unequivocal instances of energy price manipulation. The first was Enron and electrical power futures, and the second was natural gas futures and Amaranth.
Amaranth was found last year to have manipulated prices:
It is time to undo the idiocy that Phil Gramm put into place with CFMA. Just undo it and go back to how the commodities markets used to work. They worked well for 70+ years for producers, consumers and speculators.