Strategic Default: Watch as Elites Freak Out About a Trend That Isn't Happening [View article]
Interesting isn't it that the 'little people' tend to act morally and perform their contracts, whereas the rich act amorally and strategically default.
I guess that this is why the rich are rich, and the little people are little.
Something wrong somewhere when it's 'irrational' to act morally....?
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@ TiPs
It does come down to definitions, I agree.
In my view a 'speculator' is motivated by transaction profit - ie the Greed is Good approach - and this may be achieved irrespective of which way markets are moving.
But many investors - particularly at the moment - are risk averse and motivated by Fear, not Greed. I don't see their motives - or actions - as 'speculative', but they ruin markets based on consumption and production just the same.
The jargon of 'Risk On' and 'Risk Off' investment addresses this same distinction in investor motivation.
Add the investors' herd instinct; the existence of massive funds; and ingenious and avaricious middlemen, and the outcome is the terminally dysfunctional markets we now see.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@ dirtyharry
Firstly, the QE acted to prevent the collapse of the banking system, and acted to prevent deflation and depression. You may be a liquidationist: I am not.
I agree that zero interest rates discourage saving, which is undesirable, but you assume - which is understandable from the point of view of an investor - that the majority of the population has an excess of income available to save, when the truth is that a large and increasing proportion of the population is one paycheck away from insolvency.
I have written extensively on supply and demand issues.
My view is that in a finite world, with a growing population, the medium and long term trend of commodities is upwards.
But I think that market prices will - at the zero bound - oscillate between an upper bound 'sellers' market' price, where demand destruction sets in, and a lower bound 'buyer's market' price where the lowest cost producer is the last man standing.
The commodity markets are being inflated by risk averse financial buyers awash with dollars.
I frankly don't see the problem as bad monetary policy - the Fed is, as I said above - as much use at the zero bound as a chocolate teapot: I see the problem as Bad Money - ie the deficit basis of the monetary system itself.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@ jlmanfred
"My basic very optimistic outlook is at the global level."
I am a great admirer of the US, and believe that your sheer scale of human and natural resources is crucial.
Once the US realises that it is necessary to collaborate with other nations - particularly China, who are in the same boat as far as natural resources go - rather than to compete with them, then everything else will follow.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@John S Gordon
'Greedy' speculators exist all right, and are responsible for short term volatility and spikes.
But my point is that since speculators are neither consumers nor producers they can have no effect on physical market prices in the medium and long term, and the myth/meme I am debunking is that it is greedy speculators who are responsible for correlated cross-commodity high prices.
For speculators, the market is a less than zero-sum game. Only the casino operators consistently make money.
As Ferdinand Banks points out, the uncertainty (read 'volatility') which arises out of deregulation (read 'intermediation') makes necessary investment in both production and efficiency savings both difficult and expensive.
I do not advocate regulation by States - or God help us, a 'New world Order' global entity - but I do believe that it is possible to create a new global regulatory framework of consensual agreements which essentially extends self regulation to ALL market participants and not just the middlemen who currently run the market platform in their own interests.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@Albertarocks
I realise I have not addressed the 'surging dollar' point you raise.
It seems to me that if the - dollar denominated - commodity markets DO collapse then the investors may indeed fly to T-Bill safety, but that would not affect the exchange rate.
I confess my crystal ball is clouded by the $ carry trade and my view that the crucial, but inscrutable, Chinese economy is totally unpredictable because they do not play by our rules.
I do believe, however, that the EU is much more solid than many observers believe, although with an overlay of a currency unsustainable in its current form. Similarly, Japan is a very long way from the economic basket case widely portrayed.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@ Albertarocks
Thanks for your appreciation, and particularly for your thoughtful response.
I think that the post property bubble problem faced by the US and UK in particular with Ireland and Spain not too dissimilar, is of systemic wealth imbalance with the majority of the population in debt to a small minority which owns substantially all of the unmortgaged wealth.
This is not new: it's happened for thousands of years as a result of the combination of compounding debt and private property in land.
The outcome is that there is no mechanism - whether through increased earned income, or sufficient credit - whereby the purchasing power which might lead to hyper-inflation could reach consumers who are for the most part, illiquid, insolvent or both.
You are quite right about the Fed which is - at the zero bound - about as much use as a chocolate teapot, as we say in the UK.
In terms of Economics, I think that the monetary assumptions of Chartalists and MMT'ers (and I am neither) reflect reality better than those of Keynesians and any other school of Monetarist. But frankly, that doesn't matter a damn since there is no more chance of Chartalist/MMT policies being adopted than there is of Austrian policies going mainstream.
I take a more radical view, believing as I do that the effects of the direct instantaneous connections enabled by the Internet will transform (indeed are already transforming) economic interactions in ways most of us will find difficult to understand.
Within two to five years, I think the global market architecture and economy will look very different, and very positively so.
But then as an optimist, I only ever get unpleasant surprises.... :-)
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
@ Michael
Thanks for the response.
I think that there is money is to be made from a having a better understanding of market drivers than others have - assuming that one's assumptions are correct of course. But it's a risky business taking a contrarian view, since as the guy said, markets can stay irrational for longer than we can stay solvent.....
I think that the potential is there for a collapse of markets as happened after the oil spike in 2008. IMHO no spike from these levels is sustainable, since consumers will simply cut buying and in the oil markets at least there is relatively little storeage as a 'cushion'.
But that does not mean that there won't be a spike, just that if there is, there'll be a crash to follow.
It might be an interesting strategy to put on a few waaay out of the money options both above and below the current market prices, but more below than above.
The essence of my argument is that far from it being 'speculation' by investors in search of transaction profit - least of all banks, who have neither the balance sheet nor a regulatory green light - what we are seeing is what happens at the zero bound when risk averse money (which belongs not to the banks, but the funds and other investors with accounts at banks) pours into the markets.
Consumers lose, and producers make out like bandits.
Inflation Expectations as a Gauge of QE II Effectiveness [View article]
Inflationary expectations certainly exist in the mind of investors - they wouldn't buy assets otherwise would they?
But I do not think that the average Joe Sixpack consumer is considering future inflation when he asks for a raise - he's looking at price increases which have already happened.
In other words, 'inflationary expectations' are incorporated into economic theories which are based upon the perspective of investors. But in the real world, they simply do not exist, and to assume that they do IMHO invalidates any economic theory based upon this myth.
What Oil and Gas Are Telling Us Now [View article]
@ American in Paris
As I said myself, these minor 'cut-offs' were about falling out among oligarchs. They had nothing whatever to do with political energy security and the new Cold War threat instantly hyped by the military-industrial complex.
The Russians are as worried about Europe as a reliable off-taker as vice versa. Pipelines have two ends.
What Oil and Gas Are Telling Us Now [View article]
@ Ferdinand Banks
I am of course aware of the Chinese global shopping spree, and in particular the pipelines to Russia under way, but I doubt whether the Russians will see China as a particularly trustworthy counter-party in the way that Europe has historically been.
Even Europeans really do not realise how reliable Russia has been as an energy supplier - including through the Cold War - and how necessary this forex has been to them. In particular, the recent 'unreliability' has simply been games among oligarchs to establish which murky intermediaries get the rake offs.
It was the Russians getting worried about European reliability as a market - and the need for other outlets - which led both to the Chinese connections, and of course to the Russians reactivating the 2001 Iranian 'gas OPEC' GECF initiative.
Anyway, I really enjoy your regular teasing of the Seeking Alpha readership, and have been something of an admirer of your energy market insights, which are very much congruent with my own thinking eg in terms of the complete sociopathic nature of intermediated electricity and gas markets (although my view is that the oil markets are now terminally dysfunctional, as well).
In particular I appreciate your simplly expressed insight that deregulation leads to uncertainty - the reason being the interpolation of intermediaries with an interest in volatility - and hence to increased costs of capital investment.
Also we mustn't forget the totally ludicrous carbon/emissions trading market brought to us by Enron, and which I addressed in 'Energy Risk' some six years ago this month.
which I now see you gave a good kicking a couple of years ago.
I trust you'll keep up the good work in 2011, and I recommend to SA readers that they ignore the ornamentation and appreciate the nuggets to be found beneath.
What Oil and Gas Are Telling Us Now [View article]
@ Offthepoint
There is no mechanism for 'shorting the price' of physical - as opposed to paper - natural gas. The financial bets on CME/ICE Henry Hub have no more effect on the physical market than if I bet you that prices would fall.
The drop in US market prices is due - as it always is - to oversupply in the US market for physical gas, exacerbated by the fact that storage of natural gas (unlike, say, gold and copper) is extremely limited.
The reason IMHO for the increased differential is that crude oil and oil product market prices have been supported by producers at the 'upper bound' level at which demand destruction sets in.
They have been able to do this through the presence in the market of billions of dollars from risk averse investors -motivated by fear, not greed and speculative transaction profit. So with the assistance of investment banks etc, ETFs have been borrowing oil from producers and lending them dollars interest-free in return.
Whereas natural gas has fallen to the 'lower bound' where production destruction sets in, and the last man standing is the lowest cost producer.
Natural gas markets are, as this excellent article points out, fragmented by the absence of infrastructure, and do not have the necessary global market infrastructure to enable the price to be supported by producers - which they would always do if they could - even were the market not overs-supplied.
@ Ferdinand Banks
You are normally fairly astute, so I will treat this dumb comment as a hung-over New Year aberration.
For your information, in order to access all this Far Eastern 'long green' Gazprom will need to spend gazillions of dollars they do not have, plus a great many years, in adequately accessing these markets.
In the meantime they are at one end of the pipeline, and Europe is at the other, and the mutual dependence will continue.
Strategic Default: Watch as Elites Freak Out About a Trend That Isn't Happening [View article]
I guess that this is why the rich are rich, and the little people are little.
Something wrong somewhere when it's 'irrational' to act morally....?
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
It does come down to definitions, I agree.
In my view a 'speculator' is motivated by transaction profit - ie the Greed is Good approach - and this may be achieved irrespective of which way markets are moving.
But many investors - particularly at the moment - are risk averse and motivated by Fear, not Greed. I don't see their motives - or actions - as 'speculative', but they ruin markets based on consumption and production just the same.
The jargon of 'Risk On' and 'Risk Off' investment addresses this same distinction in investor motivation.
Add the investors' herd instinct; the existence of massive funds; and ingenious and avaricious middlemen, and the outcome is the terminally dysfunctional markets we now see.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
Firstly, the QE acted to prevent the collapse of the banking system, and acted to prevent deflation and depression. You may be a liquidationist: I am not.
I agree that zero interest rates discourage saving, which is undesirable, but you assume - which is understandable from the point of view of an investor - that the majority of the population has an excess of income available to save, when the truth is that a large and increasing proportion of the population is one paycheck away from insolvency.
I have written extensively on supply and demand issues.
My view is that in a finite world, with a growing population, the medium and long term trend of commodities is upwards.
But I think that market prices will - at the zero bound - oscillate between an upper bound 'sellers' market' price, where demand destruction sets in, and a lower bound 'buyer's market' price where the lowest cost producer is the last man standing.
The commodity markets are being inflated by risk averse financial buyers awash with dollars.
I frankly don't see the problem as bad monetary policy - the Fed is, as I said above - as much use at the zero bound as a chocolate teapot: I see the problem as Bad Money - ie the deficit basis of the monetary system itself.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
"My basic very optimistic outlook is at the global level."
I am a great admirer of the US, and believe that your sheer scale of human and natural resources is crucial.
Once the US realises that it is necessary to collaborate with other nations - particularly China, who are in the same boat as far as natural resources go - rather than to compete with them, then everything else will follow.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
'Greedy' speculators exist all right, and are responsible for short term volatility and spikes.
But my point is that since speculators are neither consumers nor producers they can have no effect on physical market prices in the medium and long term, and the myth/meme I am debunking is that it is greedy speculators who are responsible for correlated cross-commodity high prices.
For speculators, the market is a less than zero-sum game. Only the casino operators consistently make money.
Ben Bernanke and the Price of Oil [View article]
As Ferdinand Banks points out, the uncertainty (read 'volatility') which arises out of deregulation (read 'intermediation') makes necessary investment in both production and efficiency savings both difficult and expensive.
I do not advocate regulation by States - or God help us, a 'New world Order' global entity - but I do believe that it is possible to create a new global regulatory framework of consensual agreements which essentially extends self regulation to ALL market participants and not just the middlemen who currently run the market platform in their own interests.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
Thank you for your courteous response.
The only way in which the challenges of population growth can be addressed is through reconfiguring markets and economics.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
I realise I have not addressed the 'surging dollar' point you raise.
It seems to me that if the - dollar denominated - commodity markets DO collapse then the investors may indeed fly to T-Bill safety, but that would not affect the exchange rate.
I confess my crystal ball is clouded by the $ carry trade and my view that the crucial, but inscrutable, Chinese economy is totally unpredictable because they do not play by our rules.
I do believe, however, that the EU is much more solid than many observers believe, although with an overlay of a currency unsustainable in its current form. Similarly, Japan is a very long way from the economic basket case widely portrayed.
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
Thanks for your appreciation, and particularly for your thoughtful response.
I think that the post property bubble problem faced by the US and UK in particular with Ireland and Spain not too dissimilar, is of systemic wealth imbalance with the majority of the population in debt to a small minority which owns substantially all of the unmortgaged wealth.
This is not new: it's happened for thousands of years as a result of the combination of compounding debt and private property in land.
The outcome is that there is no mechanism - whether through increased earned income, or sufficient credit - whereby the purchasing power which might lead to hyper-inflation could reach consumers who are for the most part, illiquid, insolvent or both.
You are quite right about the Fed which is - at the zero bound - about as much use as a chocolate teapot, as we say in the UK.
In terms of Economics, I think that the monetary assumptions of Chartalists and MMT'ers (and I am neither) reflect reality better than those of Keynesians and any other school of Monetarist. But frankly, that doesn't matter a damn since there is no more chance of Chartalist/MMT policies being adopted than there is of Austrian policies going mainstream.
I take a more radical view, believing as I do that the effects of the direct instantaneous connections enabled by the Internet will transform (indeed are already transforming) economic interactions in ways most of us will find difficult to understand.
Within two to five years, I think the global market architecture and economy will look very different, and very positively so.
But then as an optimist, I only ever get unpleasant surprises.... :-)
Who's to Blame for High Commodity Prices? It's the Producers, Stupid [View article]
Thanks for the response.
I think that there is money is to be made from a having a better understanding of market drivers than others have - assuming that one's assumptions are correct of course. But it's a risky business taking a contrarian view, since as the guy said, markets can stay irrational for longer than we can stay solvent.....
I think that the potential is there for a collapse of markets as happened after the oil spike in 2008. IMHO no spike from these levels is sustainable, since consumers will simply cut buying and in the oil markets at least there is relatively little storeage as a 'cushion'.
But that does not mean that there won't be a spike, just that if there is, there'll be a crash to follow.
It might be an interesting strategy to put on a few waaay out of the money options both above and below the current market prices, but more below than above.
Ben Bernanke and the Price of Oil [View article]
I've been as intrigued by the relationship between money and commodity prices as you have, I think and I just published an Instablog here
seekingalpha.com/insta...
The essence of my argument is that far from it being 'speculation' by investors in search of transaction profit - least of all banks, who have neither the balance sheet nor a regulatory green light - what we are seeing is what happens at the zero bound when risk averse money (which belongs not to the banks, but the funds and other investors with accounts at banks) pours into the markets.
Consumers lose, and producers make out like bandits.
Inflation Expectations as a Gauge of QE II Effectiveness [View article]
But I do not think that the average Joe Sixpack consumer is considering future inflation when he asks for a raise - he's looking at price increases which have already happened.
In other words, 'inflationary expectations' are incorporated into economic theories which are based upon the perspective of investors. But in the real world, they simply do not exist, and to assume that they do IMHO invalidates any economic theory based upon this myth.
What Oil and Gas Are Telling Us Now [View article]
As I said myself, these minor 'cut-offs' were about falling out among oligarchs. They had nothing whatever to do with political energy security and the new Cold War threat instantly hyped by the military-industrial complex.
The Russians are as worried about Europe as a reliable off-taker as vice versa. Pipelines have two ends.
What Oil and Gas Are Telling Us Now [View article]
I am of course aware of the Chinese global shopping spree, and in particular the pipelines to Russia under way, but I doubt whether the Russians will see China as a particularly trustworthy counter-party in the way that Europe has historically been.
Even Europeans really do not realise how reliable Russia has been as an energy supplier - including through the Cold War - and how necessary this forex has been to them. In particular, the recent 'unreliability' has simply been games among oligarchs to establish which murky intermediaries get the rake offs.
It was the Russians getting worried about European reliability as a market - and the need for other outlets - which led both to the Chinese connections, and of course to the Russians reactivating the 2001 Iranian 'gas OPEC' GECF initiative.
Anyway, I really enjoy your regular teasing of the Seeking Alpha readership, and have been something of an admirer of your energy market insights, which are very much congruent with my own thinking eg in terms of the complete sociopathic nature of intermediated electricity and gas markets (although my view is that the oil markets are now terminally dysfunctional, as well).
In particular I appreciate your simplly expressed insight that deregulation leads to uncertainty - the reason being the interpolation of intermediaries with an interest in volatility - and hence to increased costs of capital investment.
Also we mustn't forget the totally ludicrous carbon/emissions trading market brought to us by Enron, and which I addressed in 'Energy Risk' some six years ago this month.
www.opencapital.net/pa...
which I now see you gave a good kicking a couple of years ago.
I trust you'll keep up the good work in 2011, and I recommend to SA readers that they ignore the ornamentation and appreciate the nuggets to be found beneath.
What Oil and Gas Are Telling Us Now [View article]
There is no mechanism for 'shorting the price' of physical - as opposed to paper - natural gas. The financial bets on CME/ICE Henry Hub have no more effect on the physical market than if I bet you that prices would fall.
The drop in US market prices is due - as it always is - to oversupply in the US market for physical gas, exacerbated by the fact that storage of natural gas (unlike, say, gold and copper) is extremely limited.
The reason IMHO for the increased differential is that crude oil and oil product market prices have been supported by producers at the 'upper bound' level at which demand destruction sets in.
They have been able to do this through the presence in the market of billions of dollars from risk averse investors -motivated by fear, not greed and speculative transaction profit. So with the assistance of investment banks etc, ETFs have been borrowing oil from producers and lending them dollars interest-free in return.
Whereas natural gas has fallen to the 'lower bound' where production destruction sets in, and the last man standing is the lowest cost producer.
Natural gas markets are, as this excellent article points out, fragmented by the absence of infrastructure, and do not have the necessary global market infrastructure to enable the price to be supported by producers - which they would always do if they could - even were the market not overs-supplied.
@ Ferdinand Banks
You are normally fairly astute, so I will treat this dumb comment as a hung-over New Year aberration.
For your information, in order to access all this Far Eastern 'long green' Gazprom will need to spend gazillions of dollars they do not have, plus a great many years, in adequately accessing these markets.
In the meantime they are at one end of the pipeline, and Europe is at the other, and the mutual dependence will continue.