Arbitrage works the other way as well, buying in the cash market and selling in the futures market will drive the cash market up. Furthermore, the sellers in most cases have the choice of selling in the case or futures markets, so they are their own arbitrageurs.
And as I said, if you don't think speculators cannot drive prices, explain the real estate market.
http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing/
“Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.
More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.”
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However the market corrected itself in spite of all these laws and regulations and now we have lower home prices but of course the liberal media makes it worse than it was and now home prices being low is bad. But the liberal media is lying again hiding the true cause which I just posted above and instead blaming free market capitalism. I heard home sales are rising again so the market is working despite all the government interference. The liberal media exxagerated the problem otherwise home sales would not be rising. actually the job losses and coming recession are caused by skyrocketing oil and gasoline prices not any housing bubble.
One of the differences between the housing market and the oil futures market is that when a speculator buys a house, it is no longer available for other buyers. Either he lives in it or he puts it up for rent.
When a speculator buys an oil contract, he hasn't reduced the oil available for end users.
Someone in a previous post made the comment that there are only so many futures contracts and therefore it is easy to run prices up. That is not true. Initially, there are zero futures contracts, until someone takes a position, either long or short. Then a contract is created. The person on the other side of the contract could be a hedger, a speculator, or could even be looking to add a leg to a spread or a straddle, or whatever. When that position is closed out prior to expiration, that contract ceases to exist. It disappears. This is part of the reason that the analogy to the housing market doesn't work. The actual speculators in futures contracts have no interest in either taking delivery nor in delivering. They take a position in the hope that the market moves in their direction. If the market moves against them, they can have a stop to immediately close their position at whatever amount of loss they are willing to take. This is another reason the real estate analogy doesn't work.
“sellers in most cases have the choice of selling in the cash or futures markets”. Sellers in the cash market would have to have product to deliver, so I don't think would work for arbitrageurs, who are generally speculators, not producers.
“if you don't think speculators cannot drive prices, explain the real estate market.”
1. Speculators in futures trade in contracts, not physical products. Those contracts are created and destroyed at will as positions are entered and exited.
2. Speculators in real estate trade in actual, physical properties, of which they must take possession.
3. The term “Speculator” in futures markets and in real estate are two different things, with completely different meanings and sets of rules. The risks are not the same. The transactions are not the same.
4. The real estate market is analogous to the “cash” commodities markets. I think people misunderstand this, since most people buy real estate with a mortgage, but it is still a physical, cash market.
5. The correct analogy is between real estate buyers (of all types) and the buyers in the oil cash market. That is where the real price increases occur. Demand exceeds supply and prices are bid up. The futures traders simply make their best guess as to whether prices will continue up, or will reverse. They could be right and they could be wrong. But they don't drive the cash price (which is what effects the price we pay at the pump). Supply and demand (and some fear and greed) drive the cash price.
6. Real estate prices were driven up by people buying actual houses, not futures contracts. The big drop in RE prices is because those houses actually exist and the actual owners can't afford them, especially the housing “speculators” who hoped to flip them at a profit. They weren't able to put in a sell stop to liquidate their position if the price of the house dropped by $1,000. Again, no analogy to the commodity futures markets.
Bottom line; there is no correlation between speculating in futures and speculating in real estate. I've done both. I drive the house prices in a neighborhood either up or down, short-term by paying either too much or too little for a house. I can't drive the price of gas at the pump in either direction by taking a long or a short oil futures position. The word “speculating”, or “speculator” may look the same, but they have nothing to do with each other.