Tuesday, July 01, 2008

Speculator-Bashing: Scapegoating, Grandstanding

Speculator-bashing is another exercise in scapegoating and grandstanding. Leading politicians either don't understand what's happening or don't want to acknowledge their own complicity.

By their nature, raw materials (food, energy, minerals) sustain the broader economy. They're not just frills. When unexpectedly high demand strains existing production, prices rise sharply as buyers scramble for scarce supplies. That's what happened - in industry after industry, global buying has bumped up against production limits.

Politicians promise to tighten regulation of futures markets, but futures markets aren't the main problem. Scarcities are.

Government subsidies for corn-based ethanol have increased food prices by diverting more grain into biofuels. A third of this year's U.S. corn crop could go to ethanol. Restrictions on oil drilling in the U.S. have reduced global production and put upward pressure on prices. If politicians wish to point fingers of blame, they should start with themselves.

~Robert Samuelson
in today's IBD

HT: Juandos

8 Comments:

At 7/01/2008 5:38 PM, Blogger Sophist said...

Nothing stated in this wonderful article offers a guaranty that there is not a speculative premium build in oil prices through futures market manipulation.

Something that has been done in other markets in the past and many people have been prosecuted for doing it.

"Commodities advanced this year during a ``buying orgy'' by investors seeking better returns than stocks and bonds, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March. "

Read here

 
At 7/01/2008 6:47 PM, Blogger Walt G. said...

sophist,

I don't understand price speculation enough to talk about it. However, I understand a little about argumentation and debate.

Saying sonmething can be done or has been done does not provide evidence that it is being done. Word choice connotation and terms such as "buying orgy" prove nothing. What evidence do you have that oil speculators have engaged in illegal manipulation of oil prices?

All I have seen, and once again I am no expert, is that people are putting their money in oil futures in hope they will have a better return than other choices.

If you think they are right, maybe you should jump on the bandwagon. It's too risky for my taste. Often times, big winners turn into big whinners and big losers quickly.

 
At 7/01/2008 7:15 PM, Blogger OBloodyHell said...

> I don't understand price speculation enough to talk about it.

That's ok, neither does he.

> Often times, big winners turn into big whinners and big losers quickly.

Hey, Walt. Just wait for Hillary to jump in. She's already made a small fortune on pork futures.

 
At 7/02/2008 8:57 AM, Blogger Sophist said...

Hi Walt,

Obloodyhell has a theory about pricing:

"Pricing is kind of opposite to quantum mechanics."

From this blogpost of him

You see, in the face of this significant relevation, whio else has the right of talking.

Let us all pray:

"Pricing is kind of opposite to quantum mechanics." (obloodyhell, 2008)

I mean Walt, we ar ebehind. Quantum Mechanics has found its way, thanks to obloodyhell, who is currently having a shave for his trip to Stockholm.

I mean now people realized he is not a crackpot.

 
At 7/02/2008 12:12 PM, Anonymous Norman said...

If people think that speculators are minipulating the oil market its nothing compared to what minipulation government intervention will bring.

 
At 7/02/2008 3:52 PM, Blogger juandos said...

"All I have seen, and once again I am no expert, is that people are putting their money in oil futures in hope they will have a better return than other choices"...

Good point walt g...

The question (as sophist already knows) is what's the difference between a speculator and somone who is buying stocks, bonds, or whatever for their portfolios?

Aren't both kinds of buyer/seller types making some sort of bet on the future regardless if its long term or short?

 
At 7/10/2008 9:21 AM, Blogger Art A Layman said...

Mr. Samuelson states: "...Restrictions on oil drilling in the U.S. have reduced global production and put upward pressure on prices...."

Now not knowing for sure what "restrictions" Mr. Samuelson is referring to, one must assume that he means offshore OCS and ANWR, the topics of the day.

Given that oil drilling in these areas has been "restricted" (disallowed) for years then oil production in these areas was never a part of global oil production. Therefore those "restrictions" cannot be seen as "reducing" global production.

The "restrictions" might be considered as impacting the amount of technically recoverable oil supplies but they cannot be "reducing" global production until they are included in or immediately available for global production.

This may seem a minor point, a semantic argument, but we're not talking here about a debate between a few bloggers. Mr. Samuelson is well experienced in business and economic reporting dating from 1969. One presumes that he has accumulated a reasonable degree of expertise in those subjects.

When someone of his professional stature makes such a simple logical error it gives pause to those of us who only view the subject from the fringes. It is unfortunate that in today's world the opinions of "experts" must always be viewed through the prism of their political leanings.

 
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