riverpirate

'Index Speculators' Responsible For Commodity Prices?

Think about the the housing bubble for a second: there was a also a seller for every buyer during the ascent of the housing bubble.

The key to every bubble is not the actual moneyflow, it is the EXPECTATION of higher prices. The hypothesis is no different here -- Index speculators are not buying houses to live in them, they are buying them on the expectation of perennially greater prices. That someone would sell oil futures (or be short) makes perfect sense as long as the fools remain solvent.

For example I am willing to go short oil here because I think it's hit a top. I may lose, as short have in previous contract months for quite a while, but as long as I don't develop the expectation that crude prices will be perennially higher every contract expiration I will be willing to take the sell side once and a while.

What you're seeing with the passage of time is fewer people willing to take the sell side. The bids on the contracts keep going up, up, up, to convince people like myself to write contracts -- because we don't want to! The skyrocketting price of oil is the result of a TON of PERMA-LONG money dragging reluctant sellers into the market by the only way they can: jacking up their bids.

So too with the housing bubble. As prices ramped up and up speculators were willing to buy, for instance, 3 condos in florida, with bank money, before the condo's had even been built, on the expectation that they could liquidate them for certian profit. There was a buyer and seller for EVERY housing transaction -- except the last one. That's how bubbles work.