TPS Posted January 11, 2011 Share Posted January 11, 2011 If your thesis were correct, then you would see a steadily rising prices of commodities that are in excess of inflation. But that hasn't really happened. The EFTs may magnify some of the price swings that are caused by natural factors that influence commodity prices, but that's not a given anyway because you have as many people betting on the opposite side. The fact that ETFs have to hold a certain long position provides an opportunity for some to capture that basis, but in no way does it influence base commodity pricing. Even in the article that you link, despite the talk about the lomg positions by the funds, the main driver of the price movement is the worry about the upcoming cold spell and the drawdown of gas reserves. I can argue that without a more liquid market, the cold concern would cause the price to spike even higher. Here's a chart of the IMF's commodity index in US$, SDR and one deflated for the CPI. Can you see the spike before the global crisis (in nominal and real values)? IMF chart The reason that there's virtually no physical delivery of the contracts is because everyone views the market behaving as it should, so there's no need to physically settle. But if the participants feel that something is amiss then they would abandon the futures and move to spot market. Here's a link to the senate investigation. Read it. Check the testimony by commercial traders beginning on p. 139. link to the senate investigation. If anything, Sarkoczy's bandwagon jumping reinforces my view that the market is working just fine. Funny how no politicians were concerned about the commodities market when the price of corn shot up in '08 thanks to the ethanol boondogle.The EU was moving on speculation before Sarkozy took it up as a cause. Link to comment Share on other sites More sharing options...
GG Posted January 11, 2011 Share Posted January 11, 2011 Here's a link to the senate investigation. Read it. Check the testimony by commercial traders beginning on p. 139. link to the senate investigation. The EU was moving on speculation before Sarkozy took it up as a cause. It's not like many Congressional committees are set up to find the answers vs getting camera time on CSPAN. One rebuttal Link to comment Share on other sites More sharing options...
TPS Posted January 12, 2011 Share Posted January 12, 2011 It's not like many Congressional committees are set up to find the answers vs getting camera time on CSPAN. One rebuttal The Senate report covers Irwins' articles starting on p. 148 (see especially note 261). They even quote points where Irwin et al support the view that index trading has influenced demand and price. Anyone who contends that participants who are long-only (buyers) don't influence price ignores the basic theory of supply and demand. All buyers influence demand, not just index traders, but commercial traders, hedge funds, banks, etc. When you guys argue that there are sellers for every buyer, yes, but as demand increases causing prices to rise, that induces more sellers. With contango in the markets, commercials will sell more futures contract at higher prices and buy and hold more commodity. Here's a good explanation of what happened in the oil market: Verleger by the way, Irwin quotes Verleger's explanation as a possible counter to their anaylysis. Irwin also admits his recommended solution (increasing delivery points) for the problems (non-price convergence) have not met with the expected results--the results have been what Verleger describes, the index buying will maintain contango which increases profits for storage. Link to comment Share on other sites More sharing options...
TPS Posted January 12, 2011 Share Posted January 12, 2011 The Senate report covers Irwins' articles starting on p. 148 (see especially note 261). They even quote points where Irwin et al support the view that index trading has influenced demand and price. Anyone who contends that participants who are long-only (buyers) don't influence price ignores the basic theory of supply and demand. All buyers influence demand, not just index traders, but commercial traders, hedge funds, banks, etc. When you guys argue that there are sellers for every buyer, yes, but as demand increases causing prices to rise, that induces more sellers. With contango in the markets, commercials will sell more futures contract at higher prices and buy and hold more commodity. Here's a good explanation of what happened in the oil market: Verleger by the way, Irwin quotes Verleger's explanation as a possible counter to their anaylysis. Irwin also admits his recommended solution (increasing delivery points) for the problems (non-price convergence) have not met with the expected results--the results have been what Verleger describes, the index buying will maintain contango which increases profits for storage. Letter in today's FT from the guys who critcized the OECD article: FT Link to comment Share on other sites More sharing options...
GG Posted January 12, 2011 Share Posted January 12, 2011 Letter in today's FT from the guys who critcized the OECD article: FT Yes, interesting letter, especially the following passage: "So what can explain the rise? Perhaps part of the answer might lie in the $50bn of institutional money Barclays is estimating will flow into commodity indexes this year (on top of the already record high $350bn or more presently “invested”). The best available data suggest that close to half of this money is held in the form of long crude oil positions." Wow, close to HALF of the money is on long positions!!! I wonder if the short positions make up the other half? Or is this some kind of new Holcomb math? PS - if the Senate report was so damning, why haven't any regulations changed? It can't be because the banking industry is so loved in Washington compared to the farm belt, especially in the Senate. Oh, only 1 1/2 yrs later is CFTC looking into the rules yet many commodities market participants are sort of laughing at them. Link to comment Share on other sites More sharing options...
DC Tom Posted January 12, 2011 Share Posted January 12, 2011 Duelling econo-geeks...wacky fun... Link to comment Share on other sites More sharing options...
erynthered Posted January 12, 2011 Share Posted January 12, 2011 Duelling econo-geeks...wacky fun... Which econo-chicken will come home to roost though? Link to comment Share on other sites More sharing options...
GG Posted January 12, 2011 Share Posted January 12, 2011 Duelling econo-geeks...wacky fun... Stop with the insults, please. I'm not an economist. Link to comment Share on other sites More sharing options...
pBills Posted January 12, 2011 Share Posted January 12, 2011 Stop with the insults, please. I'm not an economist. But you play one on twobillsdrive? Sorry, just had to say that. Link to comment Share on other sites More sharing options...
DC Tom Posted January 12, 2011 Share Posted January 12, 2011 Stop with the insults, please. I'm not an economist. You're not going to take that out of context and shoot someone now, are you? Link to comment Share on other sites More sharing options...
3rdnlng Posted January 12, 2011 Author Share Posted January 12, 2011 Which econo-chicken will come home to roost though? Doesn't matter, the Pied Piper will lead them elsewhere. Link to comment Share on other sites More sharing options...
GG Posted January 12, 2011 Share Posted January 12, 2011 You're not going to take that out of context and shoot someone now, are you? You know, this computer monitor is starting to tick me off. Link to comment Share on other sites More sharing options...
TPS Posted January 12, 2011 Share Posted January 12, 2011 Yes, interesting letter, especially the following passage: "So what can explain the rise? Perhaps part of the answer might lie in the $50bn of institutional money Barclays is estimating will flow into commodity indexes this year (on top of the already record high $350bn or more presently “invested”). The best available data suggest that close to half of this money is held in the form of long crude oil positions." Wow, close to HALF of the money is on long positions!!! I wonder if the short positions make up the other half? Or is this some kind of new Holcomb math? PS - if the Senate report was so damning, why haven't any regulations changed? It can't be because the banking industry is so loved in Washington compared to the farm belt, especially in the Senate. Oh, only 1 1/2 yrs later is CFTC looking into the rules yet many commodities market participants are sort of laughing at them. If you look at the CFTC data, they provide the long, short and spread positions for each category. Index traders and other "investors" at net long holders; commercial traders are net short. They are simply saying that at least half of the money that comes in from index funds are in net long positions. Yes, the CFTC is now trying to determine what the position limits should be, which is what the report's recommendation was. They aren't arguing to end speculation/investing in futures, rather the argument is about putting position limits on these traders and treating them for what they are--speculators, not commercial traders. Also, they want to force OTC trades to exchanges. Personally, I would eliminate this type of passive investment strategy in futures. Real speculators bet on movements up or down; these guys are one-way buyers. As I've said, if one wants to bet on commodities, then buy stocks of the companies that mine, drill, etc. So I should get rid of my bumper sticker that says "Economists Rock"? Link to comment Share on other sites More sharing options...
TPS Posted January 13, 2011 Share Posted January 13, 2011 If you look at the CFTC data, they provide the long, short and spread positions for each category. Index traders and other "investors" at net long holders; commercial traders are net short. They are simply saying that at least half of the money that comes in from index funds are in net long positions. Yes, the CFTC is now trying to determine what the position limits should be, which is what the report's recommendation was. They aren't arguing to end speculation/investing in futures, rather the argument is about putting position limits on these traders and treating them for what they are--speculators, not commercial traders. Also, they want to force OTC trades to exchanges. Personally, I would eliminate this type of passive investment strategy in futures. Real speculators bet on movements up or down; these guys are one-way buyers. As I've said, if one wants to bet on commodities, then buy stocks of the companies that mine, drill, etc. So I should get rid of my bumper sticker that says "Economists Rock"? The debate is coming to a climax: CFTC Link to comment Share on other sites More sharing options...
Pine Barrens Mafia Posted January 14, 2011 Share Posted January 14, 2011 What is wrong with canning? I don't have the hours required to do it, and I'm not my grandmother? Link to comment Share on other sites More sharing options...
birdog1960 Posted January 14, 2011 Share Posted January 14, 2011 The debate is coming to a climax: CFTC hmmm, i'm guessing that public comment on any rules enacted will mostly be voiced by speculators and large investors, not the "public" as the republican chairman of the committee states. i'm not betting on the outcome being good for the small investor, much less the cost of food and oil after reading this article.... more of the same. Link to comment Share on other sites More sharing options...
DC Tom Posted January 14, 2011 Share Posted January 14, 2011 and I'm not my grandmother? News to us, you tupperware-counting freak. Link to comment Share on other sites More sharing options...
Dave_In_Norfolk Posted January 17, 2011 Share Posted January 17, 2011 Looks like there might be more and more working poor, capitalism seems to be doing what it does best, eliminating jobs http://www.time.com/time/business/article/0,8599,2040966,00.html#ixzz1AjqU3FPa Link to comment Share on other sites More sharing options...
3rdnlng Posted January 17, 2011 Author Share Posted January 17, 2011 Looks like there might be more and more working poor, capitalism seems to be doing what it does best, eliminating jobs http://www.time.com/time/business/article/0,8599,2040966,00.html#ixzz1AjqU3FPa I guess it was just a coincidence that unemployment more than doubled when the bubble burst, eh? Besides it's not Obama's fault the stimulus didn't work, it's capitalism's fault. Link to comment Share on other sites More sharing options...
IDBillzFan Posted January 17, 2011 Share Posted January 17, 2011 Looks like there might be more and more working poor, capitalism seems to be doing what it does best, eliminating jobs http://www.time.com/time/business/article/0,8599,2040966,00.html#ixzz1AjqU3FPa I'm with you. I say we do away with capitalism so everyone starts getting richer. Link to comment Share on other sites More sharing options...
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