How about that little issue of Goldman Sach's commodity reweighting:
http://bendtherail.blogspot.com/...pe-
updated.html
Of course now, in time to impact after the elections, OPEC announces oil production cuts.
You might enjoy Jerome Guillet serie about "countdown to $100 oil", 34th episode here:
http://www.eurotrib.com/story/20...10/16/84547/
438
Nice new blog 
.
Congrats on the new blog. From an investor (and not an economist) point of view...
I think the Fed rate hikes have slowed the US economy and thus the world economy as we slow down our purchases. True, there was some terror premium and speculation in oil that may have also slowed down discretionary spending as consumers sent more money to Saudi Arabia and Venezuela when they pulled up to the gas station.
The recent rise in the stock market seems to anticipate a higher rate of economic growth coming our way. I think this will once again increase demand for energy and we will see oil prices rising, as we haven't done anything to increase our energy supplies and alternative energy seems to be a topic most discussed on blogs and late night radio talk shows.
I think the issue you raise of a speculative premium from the futures market is right on. It's not just oil but metals and natural gas.
For the past two years I have been incredulous that financial entities could simply wade enmass into the futures market and establish a cartel paper position. This is defavto anti-competitive behaviour and has absolutely no placein our markets. It is illegal to collude in setting price above the market clearing price. Yet, the evidence indicates that is exactly what is going on to the detriment of consumers.
The Commodity Futures Trading Commission is a silly, irrelevant organization that seems hardly worth the time and space they take up. IN testimony before Congress following the 2005 Winter, natural gas maniplation, the chair of the CFTC claimed there was no collusion in the gas market. The recent collapse of Amaranth pretty well dispells that myth. Amaranth had a position large enoughto set prices in the market until it unravalled at the hands of other market manipulators. It is time to clean this mess up. The LME, one of the shadier exchanges, is beyond direct control but can be pressured into some reform. It is past time to clean up the speculative manipulation.
Good Blog
Kash-
I don't claim to be an expert, but I had the future's markets explained to me by my brother-in-law who is a licensed future's trader this past summer when I visited him.
From his description the futures market is about taking a position, and only laying down a small amount of capital to hold that position. You're apparently paying the interest plus a fee so the futures exchange can do the same to hold a contract on future delivery of oil (or gold or just about anything).
That doesn't mean this is a small investor's dream, because it can get expensive very quickly.
These are called conracts, and they do mature, but that's not the point of being a trader, which is instead just getting in on the volitility. A futures trader makes money as the value of his contracts go up or down if he's shorted the position. As long as he renews his contracts, he never takes possession of a drop of crude.
It's the leverage factor that makes futures trading so risky and so profitable. You've lost everything you laid down if your contracts are for taking delivery of oil in Novemember at $70, and a barrel is trading at $59, unless you shorted the commodity, in which case your leveraged position pays out handsomly, or conversely, if oil is trading at $70 in December and you're long and in at $59 with a contract, you've done quite well.
It's possible to sell a contract at any point, unless it's out of the money, in which case it costs you to maintain the contract, which you might hope is saleble at some time in the "future".
As this is a leveraged marketplace, you're only paying interest on borrowed money and a brokerage fee. The gains can be multiplied because your position allows you to control more than you've paid for, and losses are multiplied by a call made upon your position in mid stream because it costs more to finance holding a position that further out of the money.
When prices drop precipitously in a commodity, insiders term this sweeping the table (of all the money investors have laid out on worthless contracts, by a gathering in of these contract caused by necessary capitulation spurred by higher rates required to hold a position that's out of the money.)
In other words, if oil is trading at $59 and you hold a long position at $70 the futures market is going to demand a lot more interest on the money it lends you to hold that position. This can happen at any time.
Having given this cursory description of how futures work, what seems imminently clear is that low interest rates permit this market to flourish, and conversely, make it much more risky (so it doesn't flourish, i.e. less volitility) when interest rates are high.
So, we're paying for high gasoline price volitility in both directions up and down because of where interest rates are set, if interest rates are indeed too low as would be my contention.
Given this background second hand from the inside, I'm going to suggest you researc
I was cut off, truncated! As I was saying...
Given this background second hand from the inside, I'm going to suggest you research how low interest rates cause consumers to lose by the effect of the futures market.
The truth is the oil companies play the futures market like a Stradavarius, and they win whether the price of their commodity goes up or down because they hold most of the contracts and can make things happen.
When the market drops precipitously, they have "cleared the table" and the money "investors" have put on the table to pay for contracts that are now worthless is lost in this high stakes game because they cannot afford to maintain their positions due to the higher costs required to maintain their position.
This is a corrupt game, as corrupt as it gets, so don't be fooled. The only way to make money here is to be "in the know", or, to "follow the money", which is very risky because there are lots of people "in the know" and walking in lockstep with the money that moves the futures markets.
Most of them are either in Washington D.C. or NYC.
Don Robertson, Philosopher
Limestone, Maine
An Illustrated Philosophy Primer for Young Readers
Precious Life - Empirical Knowledge
The Grand Unifying Theory & The Theory of Time
http://www.geocities.com/donaldw...tson/
index.html
Art Auctions:
http://www.artbyus.com/auctions.....php?a=6&
b=4807
Don,
If indeed the oil companies hold most of the contracts, then the game can be political as well as economic.
Kash,
Your view seems to assume that the spot commodity will naturally exercise more influence over the process than futures contracts. That is intuitively what we would expect, but do we have any verification? The spot oil market gets bigger over time, but the futures market has grown much faster, and is now far bigger.
The question is why would spot and futures prices have anything at all to do with each other. The answer is that one represents an obligation to buy or sell the other for a particular price on a particular date. There is a relationship. Now, why does the relationship have to be controlled in the near to medium term entirely by conditions in the spot market? Why could speculative demand for oil futures not exercise a considerable influence over spot prices? You know -- I can buy it today or buy it tomorrow. If the price for oil tomorrow is $62/barrel, at what price am I willing to buy oil today? It doesn't seem unreasonable that at least some influence could run in that direction. If I am a seller, and I have the choice of locking in a sale at $62 (I don't care if the buyer intends to take delivery) or selling outright today, what price am I willing to sell at today? My guess is $62/barrel minus my cost of holding the oil for delivery against a futures contract.
I as a holder of spot oil may have the opportunity of committing to sell at future prices that are higher than prices today, letting supply and demand in the futures market work to my advantage. Why would that not make speculative activity a powerful determinant of spot prices?
I'll try to be clearer. You say that speculators have to remove oil from the spot market in order to influence spot prices. That seems to start from the assumption that spot market prices are subject only to conditions in the spot market. The futures market represents vast amounts of money, and obligations to deliver and to take delivery at some future date. If I hold real crude oil or need real crude oil and have the choice between dealing in spot and dealing in futures, don't I arbitrage between spot and futures, without much regard to whether the counterparty in the futures market has or wants to have real crude oil?
If speculators drive up the price in the futures market, won't holders of spot oil oblige themselves to deliver to speculators? If speculators drive down the price of crude, won't those in need of real crude oblige themselves to take deliver from speculators? The rest of the transaction is mere logistics, and there are storage firms out there which, for a price, see to it that hedge funds can "deliver" or "take delivery" if they need to.
k harris: Nice to have you reading over here. I think I see your point(s)... and I'm not sure that I disagree with anything that you wrote. What I feel like I need to think more about, however, are the "mere logistics" that you write about. Those logistics should show up in the data - if speculators (as a group) take a net long position on oil futures, then those logistics should imply an increase in oil stocks, something that is measurable and verifiable. Yet we have seen no such increase in oil stocks.
What I'm still puzzling over (a bit) is whether those "mere logistics" are in fact necessary for speculation to have a net effect on spot prices. So far I have persuaded myself that they are... but I'm still open to counterarguments.
Not sure that it matters - haven't thought it through - but one of the developments in commodity markets during the run-up in prices was a proliferation of commodity funds. I'm not sure this is a futures vs spot story, because some of the funds actually bought real previous metals. To my knowledge, though, in commodities that have higher storage cost, the purchases were overwhelmingly in derivatives. Point is, in the process of capitalizing those funds, there was a big new incremental demand for commodities. That new demand cooled off as the funds became fully established, then cooled more as prices stalled and investors set the funds less money. What I wonder is, as these funds were proliferating, did they become a substantial part of the final swelling up of commodity prices? Could the effort to make hay from commodities by collecting fees for inducing small investors into commodity markets have had a big distorting impact on prices - either spot or future?
com gambling internet site com gambling internet site com gambling internet site. casino download gambling game online casino download gambling game online casino download gambling game online.
Commenting by HaloScan
