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| Re: Me to Barry - Get a Fucking Job You Are Qualified For. (912601) | |||
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Re: Me to Barry - Get a Fucking Job You Are Qualified For. |
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Posted by Dave on Fri Feb 24 09:41:39 2012, in response to Re: Me to Barry - Get a Fucking Job You Are Qualified For., posted by SelkirkTMO on Thu Feb 23 16:59:33 2012. What's you're proposing is the common "wisdom" among lay persons who don't understand the nature of how commodity markets work.Physical commodity markets like oil are zero–sum markets where all money flows must by definition net to zero. For every long there is a short, for everyone who thinks the price is going up there is someone who thinks it is going down, and for everyone who trades with the flow of the market, there is someone trading against it. Flows of money, no matter how large, do not necessarily affect the futures price of a commodity at a given point in time. Prices will change if new information emerges that causes market participants to revise their estimates of physical supply and/or demand. Just because large investment have flowed into the long side of commodity futures markets at the same time that prices have risen substantially (or the reverse) does not necessarily prove anything. This is more than likely the classical statistical mistake of confusing correlation with causation. You need a test that accounts for changes in money flow and fundamentals before a conclusion can be reached about the impact of speculation. Longer–term equilibrium prices are ultimately determined in cash markets where buying and selling of physical commodities must reflect fundamental supply and demand forces. This is precisely why all commodity futures contracts have some type of delivery or cash settlement system to tie futures and cash market prices together. Speculators ARE forced to take delivery if they haven't closed their long position by settlement date. In your dreamland, Kevin, hedgers are benign risk–avoiders and speculators are active risk–seekers. This ignores nearly a century of academic research showing that the behavior of hedgers and speculators is actually better described as a continuum between pure risk avoidance and pure speculation. Nearly all commercial firms labeled as "hedgers" speculate on price direction and/or relative price movements, some frequently, others not as frequently. Observed speculative levels in commodity futures markets since early 2006 either did not exceed the hedging needs of commercial firms or did not exceed historical norms for the level of speculation relative to hedging needs. Simply put, there is no compelling evidence that speculation was 'excessive.' |
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