Sen. Bernie Sanders is blaming Wall St. for the recent spike in gas prices. I personally don’t know enough of the particulars, but his argument seems partisan (which is ironic since he is an independent) to me, at least from the 30,000 foot viewpoint I’m looking at this from. Anyone more informed than myself care to comment?
http://www.cnn.com/2012/02/28/opinion/sanders-gas-speculation/index.html?hpt=hp_c1
Why stop at blaming the speculators? Let’s go back one step to the massive liquidity surge that enables the speculation.
But speculation is just normal market activity. For instance, if you are an airline and want to hedge rising fuel costs, you might buy crude oil futures. This activity is also considered to be “speculation”. It’s not just one giant hedge fund bidding up the price of everything.
it’s the most convenient excuse because it helps politicians place blame on an easy target, while at the same time obscuring the real reason – currency debasement. of course politicians would never shed light on the real reason because it’s the fed that allows them to continue the deficit gravy train. “speculators” benefit from the same easy money policy so they’re willing to take a little public lashing in return. of course the real losers in all this are the middle class, the elderly and savers – ironically the people who politicians of a certain slant typically depend on to keep them in office. it’s a wonderful world we live in.
I love these cartoon bears. Best explaination of high gas prices:
http://www.zerohedge.com/news/bears-explain-price-gas-special-gop-primary-edition
While that example you used is true, the problem isn’t with users of the fuel speculating. It’s financial houses speculating for pure profit’s sake.
I say we totally eliminate for-profit commodities speculation. Only users who have intent on taking delivery or are consistent takers of delivery are allowed to use commodities futures. With the world’s resourses dwindling and population skyrocketing, this makes perfect sense
Trolling or sarcasm? Can’t tell…
How would you determine who would be eligible for such trading? And how do you know that phasing out market participants would reduce price volatility? If we ban proprietary trading, will SPX be less volatile? No - the result would be fewer market participants and a less efficient market with wide spreads. Everyone who buys or sells oil will lose money.
Edit: I guess the broker/dealer who makes the markets would make a shit ton of money.
I read a similar article and reached the conclusion that it is impossible to ban commodity speculation. Commodities are traded globally. If it’s not here, it’s going to be London, Tokyo, Singapore, or somewhere else. Commodities may be traded in dollars, but we really can’t do anything about it if other countries decide to allow registered traders to speculate in these markets. So I guess we might as well allow the speculators to trade here so that we can at least collect taxes from them and get some offsetting benefit.
On the other hand, if Congress were really concerned about the price of gas, they have any number of levers at their disposal to lower that price: regulations on big oil, lower taxes on gas (the tax impact on a gallon of gas in California is very high for example), etc., etc.
Also, I think the missing link here is proof that for-profit speculation is responsible for high gas prices. If all market participants were so called “takers of delivery”, how do we know gas will be cheaper?
I read a study which I can’t seem to find now that seemed to show pretty conclusively based on trading patterns and volume activity that speculators played a substantial role in the run up to $120 a barrel crude that we had a few years ago. IMO speculators probably get more blame than they deserve, but they are definitely a factor. Most of the people who trade that way are trend followers, so they tend to exacerbate directional movements (i.e., fundamentals get detached from price action for some time), most likely to the upside (higher prices) – I say that because the data is pointing toward deminishing reserves and increasing population, so like the stock market, the commodity market for the most essential commodities (crude, copper, etc.) are bound to have an upward bias over time.
Seriously, those bears are the best for explaining things in every day terms.
Yea looks like Turd Fergeson nailed it again.
Hmm…shouldn’t more speculation reduce these big rises? Speculators can take positions in either direction, it shouldn’t necessarily cause major upswings. Unless it’s very difficult to short.
Speculators are this amorphous group that sounds like they control the world, but there are actually very few speculators that actually say “what I do is speculate.” A few macro traders will admit to doing it, but that’s about it.
I think most people - or maybe it’s just me - think of prop traders as the “speculators.” I hope no one thinks it’s some dude with a Scottrade account sitting in his parent’s basement.
And, while prop traders do screw up the commodities market on an acute basis*, I don’t believe they’re to blame for sustained price shifts.
(*Long-term silver investors, myself included, have strong feelings about certain prop desks - JPM maybe? - that have artificially depressed the price for several years. Now as I write this, I guess I can’t say speculators can depress one commodity, but can’t run another up. However, silver is much more thinly traded than oil, so that’s obviously a factor.)
That’s true. But governments don’t blame “prop traders,” who are identifiable. They blame “speculators” who are amorphous “bad people” who are out there, “somewhere.”
When governments say “it’s the speculators,” what they’re saying is “the prices don’t mean that our debt/currency/equity/economy/whatnot is cr*p,” it’s all a bunch of people saying bad things about us. That may be true, but there are plenty of times when it isn’t.
So to me, when I hear about “speculators,” I hear one of two things: 1) I don’t know why this is happening, so I’m going to call it “speculators,” or 2) stop looking at me, it’s *not* my fault, waaahhhh!.
In illiquid or highly leverageable markets, sometimes the speculation accusation rings true, but it’s just really easy to misuse and fall back on it whenever it’s convenient.