Inflation

[Magox]

Provide a link to your data that shows this. The IEA data that I've seen on global demand shows supply below expected consumption.

 

 

 

Ok, so you don't understand "Spare Capacity" and it's impact on pricing. So in order to grasp this, you first must understand the term "Spare Capacity". Simply put, spare capacity is Readily, available oil that can be pumped, that isn't.

 

Or you can take this from Investopedia:

 

A situation in which actual production is less than what is achievable or optimal for a firm. This often means that the demand in the market for the product is below what the firm could potentially supply to the market.

 

The amount of excess capacity within an industry is a signal of both the health of that industry and the demand for the products it produces. Excess capacity is also seen as a good thing for consumers, as it is not likely to lead to the price inflation that would be seen in periods of near-full capacity.

Read more: http://www.investope...p#ixzz2Kz5uSs7F

 

 

You see, IEA counts supply data of oil that is being pumped. Since most of the world that produces oil only pumps the oil based off existing CONTRACTS, they don't pump to capacity, unless demand dictates so.

 

So what do I mean by "existing contracts"? Usually many oil producing countries produce enough oil to meet existing demand, and that is done through Contracts between supplier and user. In other words, Demand through contracts dictates production from many of these countries.

 

 

When you see IEA demand data, that for the most part is pretty cut and dry. The numbers shown there is pretty close to actual world wide demand. However, supply data from IEA do not paint the entire picture for the status of global oil supplies. You have to look at differential from one year to another and spare capacity.

 

 

If you want to get a better gauge of world wide supply and it's capabilities, then you have to delve deeper into the numbers, which obviously you weren't aware of.

 

 

2011 Total world consumption according to the IEA was at 88.29 yet Total world production was at 87.08

 

 

That's a net difference of 1.21 Million barrels of shortage, daily.

 

 

2012 Consumption at 89.16 and production was at 88.97

 

 

.http://www.eia.gov/f.../global_oil.cfm

 

 

So production grew by 1.91 M Barrels per day

 

yet Consumption only grew by .87M Barrels per day.

 

That's a net difference of .19 Million barrels of shortage, daily

 

 

That means the supply conditions were CONSIDERABLY better this past year than it was in 2011, yet the average price of crude oil was 3.5% higher in 2012 than it was in 2011.

 

 

 

 

Edited February 15, 2013 by Magox

[TPS]

Ok, so you don't understand "Spare Capacity" and it's impact on pricing. So in order to grasp this, you first must understand the term "Spare Capacity". Simply put, spare capacity is Readily, available oil that can be pumped, that isn't.

 

Or you can take this from Investopedia:

 

 

 

 

 

Read more: http://www.investope...p#ixzz2Kz5uSs7F

 

 

You see, IEA counts supply data of oil that is being pumped. Since most of the world that produces oil only pumps the oil based off existing CONTRACTS, they don't pump to capacity, unless demand dictates so.

 

 

When you see IEA demand data, for the most part is pretty cut and dry. The numbers shown there is pretty close to actual world wide demand. However, supply data from IEA do not show or indicate global oil supply status.

 

 

If you want to get a better gauge of world wide supply and it's capabilities, then you have to delve deeper into the numbers, which obviously you weren't aware of.

 

 

2011 Total world consumption according to the IEA was at 88.29 yet Total world production was at 87.08

 

 

That's a net difference of 1.21 Million barrels of shortage, daily.

 

 

2012 Consumption at 89.16 and production was at 88.97

 

 

.

http://www.eia.gov/f.../global_oil.cfm

 

 

 

 

So production grew by 1.91 M Barrels per day

 

yet Consumption only grew by .87M Barrels per day.

 

That's a net difference of .19 Million barrels of shortage, daily

 

 

That means the supply conditions were CONSIDERABLY better this past year than it was in 2011, yet the average price of crude oil was 3.5% higher in 2012 than it was in 2011.

 

 

 

 

 

 

 

The entire point of the Saudis being able to manage prices somewhat is related to your point.

[Magox]

The entire point of the Saudis being able to manage prices somewhat is related to your point.

 

Of course, but that doesn't support your argument.

 

http://online.wsj.com/article/SB10000872396390444358804578016140459750174.html

 

Oil prices are likely to remain volatile over the next year, analysts say, amid worries that Saudi Arabia has become less able to pump the global market out of any extraordinary disruptions to supply.

 

The Saudis don't have as much spare capacity as they use to.

 

2011

 

Saudi Arabian Oil Minister Ali Al-Naimi said Monday that the kingdom has a spare output capacity of around 3.5 million barrels per day (bpd).

 

http://news.xinhuanet.com/english2010/business/2011-04/18/c_13834359.htm

 

2012

 

Saudi Arabia alone has meaningful spare capacity of 2.1 mmbpd.

 

http://www.theoildrum.com/tag/spare_capacity

 

Here is a little something on what I was talking about earlier regarding Spare Capacity and it's impact on pricing.

 

OPEC spare capacity provides an indicator of the world oil market's ability to respond to potential crises that reduce oil supplies. As a result, oil prices tend to incorporate a rising risk premium when OPEC spare capacity reaches low levels.

 

http://www.eia.gov/finance/markets/supply-opec.cfm

Edited February 15, 2013 by Magox

[TPS]

Of course, but that doesn't support your argument.

 

http://online.wsj.co...0459750174.html

 

 

 

The Saudis don't have as much spare capacity as they use to.

 

2011

 

 

 

http://news.xinhuane.../c_13834359.htm

 

2012

 

 

 

http://www.theoildru.../spare_capacity

 

Here is a little something on what I was talking about earlier regarding Spare Capacity and it's impact on pricing.

 

 

 

http://www.eia.gov/f...supply-opec.cfm

Old stuff. Guess what's happening to the Saudi's "spare capacity" as we produce more and import less?

[Magox]

Old stuff??? it shows the spare capacity of 2011 and 2012. That's relevant to the discussion

[TPS]

Old stuff??? it shows the spare capacity of 2011 and 2012. That's relevant to the discussion

You provide conflicting influences. You say that the gap between consumption and production has narrowed, which should lower prices, but the saudi's spare capacity has shrunk, which should raise the risk premium. This is all in support of your claim that a whopping 3.5% price jump is due to money printing? Then of course none of this incorporates the various geopolitical risks that occurred during this period. One of your articles attributed a large run up in brent to the Iran embargo. Where's the QE dude?

 

And despite the "relative" improvement in demand being greater than supply, it still is greater. Seems to me the better question is why aren't prices even higher?

[Magox]

If QE was causing some type of massive devaluation of the dollar you'd see it in a wide spectrum of commodities and currency exchange rates not just oil- it's just not there, maybe it's coming who knows - there's a reason I linked to historical inflation rates, what exactly looks different between today's inflation and the inflation we've had the last 99 years? - the one real difference isn't the rate of inflation it's that wages are not keeping up ( in other times almost everyone I knew was getting cost of living adjustments that were keeping up with inflation and maybe a tad better-now not many people I know get that) and savings, ( it's almost impossible to get 2% on a 5 year cd so with even mild inflation you're losing purchasing power). I for one have no doubt that our government would actually like to see a little devaluation to help exports, a few countries most noticeable Japan are blatantly trying to devalue their currency and I think our country would like to follow suit but they have been unsuccessful as yet. The thing is it's not enough to print money to cause inflation the money has to find it's way rapidly into circulation ( I could print 10 trillion dollars but if I kept it in my basement it doesn't make a difference) .

 

The real story is that since the mid 1970s wages for a large percentage of the U.S. workers have been stagnant- and in the last 5 years they have actually declined, this has happened in spite of good productivity gains. So while the top 10% top 1% have made substantial gains the people who drive demand have declining wages and now no longer have access to credit or equity to push aggregate demand. This all leads to a slow growth world with potential for recessionary death spirals ( low demand? cut jobs, hours, wages ,which leads to lower demand) . This is not a world most people will enjoy but I'm sure a few people would love to see a deflationary spiral where they can buy assets for pennies on the dollar and pay slave wages.

 

It's not just the dollar, it's a number of currencies. If you have three other major currencies such as Euro, Pound and Yen that are all devaluing their currency, and then the Yuan which is basically pegged to the dollar, you aren't going to see the dollar vs. these currencies make a pronounced drop because they are all basically engaging in the same monetary policy. Looking at Gold and oil are the best ways to witness the devaluation of currencies world wide. Gold is an alternate currency, when investors believe inflation or currency devaluation is going on, they flock to gold.

 

In regards to your statement of "printing a trillion dollars and keeping it in my basement". This is not what is going on. Granted, the efficiency or velocity of that cash being circulated isn't happening at an enormous pace, but make no mistake, it is happening. And I already answered this point.

 

 

some of that money is being circulated into the economy. It does create lower interest rates, it allows people to refinance their homes at lower rates, which in turn saves them on their mortgages that allows them to have more disposable income of which some of that flows into the economy.

 

Secondly, there is a collateral impact on corporate bond issuance and rates. Corporate demand is higher because of lower rates, that allows companies to have more disposable cash for whatever purposes they need it for, which of course some of that flows back into the economy through more hiring and equipment.

 

Third, there is the consequence of altering consumer and investor behavior. If an investor knows that he isn't making jack **** putting money away in his savings account or whatever bonds he's investing in, some of that money will then flow into riskier assets such as stocks, which of course has a short-term impact of higher stock prices that creates higher consumer confidence to spend money into the economy.

 

Fourth, it does make our products more competitive, the lower the currency, the cheaper our goods are to foreign buyers with stronger currencies. So of course, this creates more demand for our products, which in turn leads to more profits and employment opportunities.

 

In regards to your currency devaluation question. it's sort of like what Bill Gross says, the U.S is the "cleanest dirty shirt". Since the U.S dollar is fundamentally stronger than the Euro, the Dollar doesn't get devalued relative to the Euro. And since just about every other developed nation is doing the same, taking on monetary policy that devalues their currency, the Dollar really isn't dropping. However, if you place those currencies relative to tangible assets such as commodities, then they are for the most part getting devalued.

 

In regards to your comment regarding stagnant wages. That is an entirely different point. Yes, globalization is a huge reason why wages have stagnated. However on the flip side, globalization has been broadly negative for the average manufacturing worker in developed nations such as the U.S, but has been an extremely positive development for Emerging nations such as China, India and south east Asia. Those guys are employing massive amounts of people because of it.

 

Globalization was bound to happen, it's not a nefarious policy. It's just evolution, businesses are made not primarily to cater to their workers, but to turn a profit. If you opened up a Pizza shop or any business, why are opening up that business? And don't tell me so that you can pay your employees good money. You open up that business to make an honest buck. So part of the process in achieving that is reducing your costs as much as possible while increasing efficiency. So when CEO's close shop in the U.S to build the same product over seas in the name of creating more profits, that is completely legitimate. So when people B word about CEO's making huge bonuses, well, that is also another collateral impact of Globalization. Profits are higher and if profits are higher than so is CEO compensation.

 

Where I have a problem with CEO compensation is if that particular corporation is losing money or profit growth is slowing down and they still get huge payouts. Or if they make terrible decisions that impact their company in the future and by the time they receive their golden parachute, and the company is crumbling, they still make out like bandits. There should be some sort of claw back clause in their compensation. The best way I can think of is tying their bonuses to company stock. Much of their bonuses should be paid out in stock bonuses. And that they shouldn't be able to cash out on those stocks for X amount of years. I'm not advocating for legislation to make this happen, but rather it should be done organically. It should be part of the culture of CEO payout.

 

You provide conflicting influences. You say that the gap between consumption and production has narrowed, which should lower prices, but the saudi's spare capacity has shrunk, which should raise the risk premium. This is all in support of your claim that a whopping 3.5% price jump is due to money printing? Then of course none of this incorporates the various geopolitical risks that occurred during this period. One of your articles attributed a large run up in brent to the Iran embargo. Where's the QE dude?

 

And despite the "relative" improvement in demand being greater than supply, it still is greater. Seems to me the better question is why aren't prices even higher?

 

I didn't say, the IEA says that the gap between consumption and production has narrowed.

 

And I brought up the Saudi's shrinking capacity to refute your point, which is that they don't have nearly as much control over prices as they use to, not without self-inflicting damage anyway.

 

You seem to believe that everything is a one way street. I'm telling you that there is a lot of push and pull in the markets. There are many factors that are constantly working for and against oil prices. Supply and Demand over the past year have been an influence that have impacted oil prices to the downside. Monetary policy has been a large influence that has kept prices higher. That's it.

 

And in regards to this:

 

This is all in support of your claim that a whopping 3.5% price jump is due to money printing?

 

You are one thick-headed dude. You simply just don't get it. I just provided you proof that Supply/Demand picture is much worse in 2012 than it was in 2011, with the price of crude being 3.5% higher.

 

it's as if you ignored that part

 

Jeez

 

 

 

And despite the "relative" improvement in demand being greater than supply, it still is greater. Seems to me the better question is why aren't prices even higher?

 

 

More proof that you don't have a good grasp of what we are talking about.

Edited February 15, 2013 by Magox

[TPS]

It's not just the dollar, it's a number of currencies. If you have three other major currencies such as Euro, Pound and Yen that are all devaluing their currency, and then the Yuan which is basically pegged to the dollar, you aren't going to see the dollar vs. these currencies make a pronounced drop because they are all basically engaging in the same monetary policy. Looking at Gold and oil are the best ways to witness the devaluation of currencies world wide. Gold is an alternate currency, when investors believe inflation or currency devaluation is going on, they flock to gold.

 

In regards to your statement of "printing a trillion dollars and keeping it in my basement". This is not what is going on. Granted, the efficiency or velocity of that cash being circulated isn't happening at an enormous pace, but make no mistake, it is happening. And I already answered this point.

 

 

 

In regards to your comment regarding stagnant wages. That is an entirely different point. Yes, globalization is a huge reason why wages have stagnated. However on the flip side, globalization has been broadly negative for the average manufacturing worker in developed nations such as the U.S, but has been an extremely positive development for Emerging nations such as China, India and south east Asia. Those guys are employing massive amounts of people because of it.

 

Globalization was bound to happen, it's not a nefarious policy. It's just evolution, businesses are made not primarily to cater to their workers, but to turn a profit. If you opened up a Pizza shop or any business, why are opening up that business? And don't tell me so that you can pay your employees good money. You open up that business to make an honest buck. So part of the process in achieving that is reducing your costs as much as possible while increasing efficiency. So when CEO's close shop in the U.S to build the same product over seas in the name of creating more profits, that is completely legitimate. So when people B word about CEO's making huge bonuses, well, that is also another collateral impact of Globalization. Profits are higher and if profits are higher than so is CEO compensation.

 

Where I have a problem with CEO compensation is if that particular corporation is losing money or profit growth is slowing down and they still get huge payouts. Or if they make terrible decisions that impact their company in the future and by the time they receive their golden parachute, and the company is crumbling, they still make out like bandits. There should be some sort of claw back clause in their compensation. The best way I can think of is tying their bonuses to company stock. Much of their bonuses should be paid out in stock bonuses. And that they shouldn't be able to cash out on those stocks for X amount of years. I'm not advocating for legislation to make this happen, but rather it should be done organically. It should be part of the culture of CEO payout.

 

 

 

I didn't say, the IEA says that the gap between consumption and production has narrowed.

 

And I brought up the Saudi's shrinking capacity to refute your point, which is that they don't have nearly as much control over prices as they use to, not without self-inflicting damage anyway.

 

You seem to believe that everything is a one way street. I'm telling you that there is a lot of push and pull in the markets. There are many factors that are constantly working for and against oil prices. Supply and Demand over the past year have been an influence that have impacted oil prices to the downside. Monetary policy has been a large influence that has kept prices higher. That's it.

 

And in regards to this:

 

 

 

You are one thick-headed dude. You simply just don't get it. I just provided you proof that Supply/Demand picture is much worse in 2012 than it was in 2011, with the price of crude being 3.5% higher.

 

it's as if you ignored that part

 

Jeez

 

 

 

 

 

More proof that you don't have a good grasp of what we are talking about.

What would prices be without monetary policy? What should be the 'correct price" in your view, that is given the current global demand-supply?

[Magox]

I don't know. And I don't believe there is such a thing as a "correct price". It is what it is.

 

All I'm saying is that if we didn't have QE throughout the world, the price would be lower. If I had to give my best guess, I would say without QE and the massive lowering of global interest rates we'd probably see at least $20 off the price of Crude Oil. Most likely more than that. Remember, it's not just the currency impact, we are also talking about all the collateral impacts that QE has had through out the world. You know, the "wealth effects" it has had to equities, the consumer confidence surges it has had as a result of that effect. Lower rates for refinancing and purchases of new homes, and the added disposable cash people have had because of it. Lower corporate borrowing rates. All the things I mentioned in the previous post in response to Lybob.

Edited February 15, 2013 by Magox

[....lybob]

It's not just the dollar, it's a number of currencies. If you have three other major currencies such as Euro, Pound and Yen that are all devaluing their currency, and then the Yuan which is basically pegged to the dollar, you aren't going to see the dollar vs. these currencies make a pronounced drop because they are all basically engaging in the same monetary policy. Looking at Gold and oil are the best ways to witness the devaluation of currencies world wide. Gold is an alternate currency, when investors believe inflation or currency devaluation is going on, they flock to gold. When I was a kid and bread was 60 cents I'd have relatives tell me about when bread use to be a nickle, now that bread is 2-3 dollars I tell stories about how bread use to be 60 cents- Magox if you want anybody other than Obama haters to get excited about this then you have to explain how the inflation we are experiencing now is any different from the inflation we've experienced for the last 100 years.

 

In regards to your statement of "printing a trillion dollars and keeping it in my basement". This is not what is going on. Granted, the efficiency or velocity of that cash being circulated isn't happening at an enormous pace, but make no mistake, it is happening. And I already answered this point. The point as you've already admitted is that we are in a currency war where multiple countries are purposely trying to devalue their currencies to make their exports more competitive with the side benefit if you are a big debtor nation like the US that value of your debt is reduced- It would almost be economic malpractice for the US not to seek to devalue it's currency and if you had any concerns it should be how ineffectual they have been at doing it.

 

 

 

In regards to your comment regarding stagnant wages. That is an entirely different point. Yes, globalization is a huge reason why wages have stagnated. However on the flip side, globalization has been broadly negative for the average manufacturing worker in developed nations such as the U.S, but has been an extremely positive development for Emerging nations such as China, India and south east Asia. Those guys are employing massive amounts of people because of it. Yes our government and others changed tax law and trade policy to not simply to allow but to incentivize the offshoring of jobs which while being negative for the average manufacturing worker in developed nations is a positive for workers in emerging nations and absolutely rocks for CEO's and owners - the point being that's who our government works for.

 

Globalization was bound to happen, it's not a nefarious policy. It's just evolution, businesses are made not primarily to cater to their workers, but to turn a profit. If you opened up a Pizza shop or any business, why are opening up that business? And don't tell me so that you can pay your employees good money. You open up that business to make an honest buck. So part of the process in achieving that is reducing your costs as much as possible while increasing efficiency. So when CEO's close shop in the U.S to build the same product over seas in the name of creating more profits, that is completely legitimate. So when people B word about CEO's making huge bonuses, well, that is also another collateral impact of Globalization. Profits are higher and if profits are higher than so is CEO compensation.

 

Where I have a problem with CEO compensation is if that particular corporation is losing money or profit growth is slowing down and they still get huge payouts. Or if they make terrible decisions that impact their company in the future and by the time they receive their golden parachute, and the company is crumbling, they still make out like bandits. There should be some sort of claw back clause in their compensation. The best way I can think of is tying their bonuses to company stock. Much of their bonuses should be paid out in stock bonuses. And that they shouldn't be able to cash out on those stocks for X amount of years. I'm not advocating for legislation to make this happen, but rather it should be done organically. It should be part of the culture of CEO payout. At some point people are going to have to decide whether they want to be governed as sovereign nations or as extensions of multinational corporations- right now we have the worse of both worlds - move jobs and technology to China great oops now we need to spend a trillion dollars a year to contain China sorry about your school lunch and Gram-ma's hip replacement- there is nothing sadder in my eyes than the number of people who allow themselves to be treated as a cog in a corporate machine one moment and then whipped into a nationalist fever the next by an elite who don't give a flying !@#$ about you- and this bull **** that business is a force of nature following natural laws is puke inspiring, business has been regulated since the beginning of history with the only question being to who's advantage- even now there all types of things you can't legally sell to different countries and then you have countries like Cuba and Iran where it's illegal to sell almost anything- and let us remember the BS that was used to sell globalization "sure we are moving those tedious, dangerous, low paying jobs off-shore but we will be replacing them with fulfilling, creative, high paying jobs" a lot of people knew this was nonsense at the time but got rolled over by monied interests. A simple fix for the woes of globalization would have been forcing companies to pay their foreign workers at least 20% of what they paid their American workers - another rule might be if your work force is less than 60% Americans then you lose your status as an American Company and lose you right to financially contribute as a corporation to American political activity.

 

 

 

 

 

 

 

 

 

[Magox]

The erosion of purchasing power is certainly not a new development. What I'm saying is that it has accelerated over the past 5-10 years. It's not so much an argument of QE, but of loose monetary policy. Of course, this has nothing to do with Obama, so I don't know why you made that point, it has to do with Central bankers more than anything else.

 

And secondly, I'm not going to defend their actions, I believe the cost of QE and loose monetary policy has been more detrimental than good. It has hurt lower to middle income familes. It has eroded their purchasing power of their dollars, while their wages have stagnated. These are the people who get hurt the most as a result of QE. They don't have much in stocks. If they are already employed it doesn't affect their pay. All it did was raise the cost of some of the things they need.

[....lybob]

The erosion of purchasing power is certainly not a new development. What I'm saying is that it has accelerated over the past 5-10 years. It's not so much an argument of QE, but of loose monetary policy. Of course, this has nothing to do with Obama, so I don't know why you made that point, it has to do with Central bankers more than anything else.

 

And secondly, I'm not going to defend their actions, I believe the cost of QE and loose monetary policy has been more detrimental than good. It has hurt lower to middle income familes. It has eroded their purchasing power of their dollars, while their wages have stagnated. These are the people who get hurt the most as a result of QE. They don't have much in stocks. If they are already employed it doesn't affect their pay. All it did was raise the cost of some of the things they need.

Magox when silver was around $12.50 I put a large amount of my savings into it because it thought economic conditions favored very high inflation well I was a genius for a while as silver in a fairly short time went almost to $50 I sold a small amount at that time but bought again when silver dipped below $30 because I still thought that conditions still favored high inflation in fact I recommended it as a good investment to friends - well for our economic theories to be worth anything they have to be predictive of the unusual (predicting rain in Seattle doesn't count) and that prediction has to come true in a timely manner ( if I tell you eating chicken wings will kill you I shouldn't come to your funeral 45 years later and say "I told you") if our economic theory doesn't do this then it's wrong in it's premise or there are unaccounted for variables - when reality differs with our theory, it makes no sense to argue reality, you have to discard or at least tweek your theory - in my case I have to acknowledge that Banks, Central Banks, nations etc etc can shape or delay expected result to a greater extent and longer duration than I imagined - so far as I see inflation is rather in line with historic norms, government policy continues to favor the big financial institutions and other corporate power centers which is nothing new. Edited April 12, 2013 by ....lybob

[Dean Cain]

Can we have inflation if Walmart is struggling? Sounds more to me like corrupt Yankee Wall Street babies manipulating the markets.

[TPS]

I don't know. And I don't believe there is such a thing as a "correct price". It is what it is.

 

All I'm saying is that if we didn't have QE throughout the world, the price would be lower. If I had to give my best guess, I would say without QE and the massive lowering of global interest rates we'd probably see at least $20 off the price of Crude Oil. Most likely more than that. Remember, it's not just the currency impact, we are also talking about all the collateral impacts that QE has had through out the world. You know, the "wealth effects" it has had to equities, the consumer confidence surges it has had as a result of that effect. Lower rates for refinancing and purchases of new homes, and the added disposable cash people have had because of it. Lower corporate borrowing rates. All the things I mentioned in the previous post in response to Lybob.

All of those collateral effects are related to increased spending and demand. QE has been operating because of the lack of demand. If QE has had an impact on underlying economic growth and demand, then I would tend to agree with you.

 

As you stated earlier, the price of oil will fall if there is another recession, despite the quantity of money that's been pumped into the economy via QE. My argument re QE, as I wrote about with QE2, is that it initially caused a huge flow into oil (and other commodity) bets that raised the price above what the underlying fundamentals dictated. That couldn't and didn't last. There is no argument about the long run price determination.

[Magox]

Of course QE has had an impact. Any one with at least half a brain realizes that the stock market has been boosted by QE and that more people have refinanced as a result of it. The real question is do these positive effects outweigh the tax that has been imposed on middle class to lower class families through significantly higher food and gas prices and the future risks of QE? I say no.

 

And nope, I said it would fall temporarily because of a recession. Because the only policy prescription that central bankers know, is to prime the pumps even more,, which would erode the value of their currencies even more so, which would lead us to the very same predicament we have today, which is elevated inflation with slow growth. The only thing that will bring down oil and gas prices is when po,icy makers see even higher inflation, and they move to a more hawkish stance. It will be a protracted cycle of tightening. And as a result oil prices will significantly fall off.

 

 

And to your statement "couldn't and wouldn't last"

 

 

It's still here dipshit

 

You have no credibility on this subject, I mean you weren't even aware of what spare capacity was. What's even worse is you don't understand the impact of what weak currencies have on commodities. You've already embarrassed yourself enough professor dingbat. Time for you to go back to the blackboard and spew your leftist ideologies on some naive kid.

[TPS]

Of course QE has had an impact. Any one with at least half a brain realizes that the stock market has been boosted by QE and that more people have refinanced as a result of it. The real question is do these positive effects outweigh the tax that has been imposed on middle class to lower class families through significantly higher food and gas prices and the future risks of QE? I say no.

 

And nope, I said it would fall temporarily because of a recession. Because the only policy prescription that central bankers know, is to prime the pumps even more,, which would erode the value of their currencies even more so, which would lead us to the very same predicament we have today, which is elevated inflation with slow growth. The only thing that will bring down oil and gas prices is when po,icy makers see even higher inflation, and they move to a more hawkish stance. It will be a protracted cycle of tightening. And as a result oil prices will significantly fall off.

 

 

And to your statement "couldn't and wouldn't last"

 

 

It's still here dipshit

 

You have no credibility on this subject, I mean you weren't even aware of what spare capacity was. What's even worse is you don't understand the impact of what weak currencies have on commodities. You've already embarrassed yourself enough professor dingbat. Time for you to go back to the blackboard and spew your leftist ideologies on some naive kid.

Of course QE has had an impact. Any one with at least half a brain realizes that the stock market has been boosted by QE and that more people have refinanced as a result of it. The real question is do these positive effects outweigh the tax that has been imposed on middle class to lower class families through significantly higher food and gas prices and the future risks of QE? I say no.

 

And nope, I said it would fall temporarily because of a recession. Because the only policy prescription that central bankers know, is to prime the pumps even more,, which would erode the value of their currencies even more so, which would lead us to the very same predicament we have today, which is elevated inflation with slow growth. The only thing that will bring down oil and gas prices is when po,icy makers see even higher inflation, and they move to a more hawkish stance. It will be a protracted cycle of tightening. And as a result oil prices will significantly fall off.

 

 

And to your statement "couldn't and wouldn't last"

 

 

It's still here dipshit

 

You have no credibility on this subject, I mean you weren't even aware of what spare capacity was. What's even worse is you don't understand the impact of what weak currencies have on commodities. You've already embarrassed yourself enough professor dingbat. Time for you to go back to the blackboard and spew your leftist ideologies on some naive kid.

Someone's in bad mood.

 

[TPS]

Btw, in case you get bored, here are few other people who agree with my view...

http://www.makefinancework.org/IMG/pdf/evidence_on_impact_of_commodity_speculation.pdf

 

[Magox]

Btw, in case you get bored, here are few other people who agree with my view...

http://www.makefinan...speculation.pdf

 

Oh, so we're gonna play the "Since I can't back up my own hypothesis, I will find someone who does" game?

 

Fine

 

 

Irwin, Scott H. and Dwight R. Sanders. “The Impact of Index and Swap Funds in Commodity Futures Markets.” A Technical Report Prepared for the Organization on Economic Co-Operation and Development (OECD) (June 2010): 3, 30, 69-70.

• “…a number of economists have expressed skepticism about the bubble argument, citing logical inconsistencies in bubble arguments and contrary facts. These economists argue that commodity markets were driven by fundamental factors that pushed prices higher. The main factors cited as driving the price of crude oil include strong demand from China, India, and other developing nations, a leveling out of crude oil production, a decrease in the responsiveness of consumers to price increases, and U.S. monetary policy. In the grain markets, the diversion of row crops to biofuel production and weather-related production shortfalls are cited, as well as demand growth from developing nations and U.S. monetary policy.”
  
• “In sum, the weight of the existing evidence clearly tilts in favor of the argument that index funds did not cause a bubble in commodity futures prices.”
  
• “There is no convincing evidence that positions held by index traders or swap dealers impact market returns.”
  
• “The policy implication of the available evidence on the market impact of commodity index funds is straightforward: current regulatory proposals to limit speculation—especially on the part of index funds—are not justified and likely will do more harm than good. In particular, limiting the participation of index fund investors would rob the commodity futures markets of an important source of liquidity and risk-absorption capacity at a time when both are in high demand. More ominously, tighter position limits on speculation in commodity futures markets combined with the removal of hedge exemptions could force commodity index funds into cash markets, where truly chaotic results could follow. The net result is that moves to tighten regulations on index funds are likely to make commodity futures markets less efficient mechanisms for transferring risk from parties who don’t want to bear it to those that do, creating added costs that ultimately are passed back to producers in the form of lower prices and to consumers as higher prices.”
  

• “…While the increased participation of index fund investments in commodity markets represents a significant structural change, this has not generated increased price volatility, implied or realised, in agricultural futures markets. Based on new data and empirical analysis, the study finds that index funds did not cause a bubble in commodity futures prices. There is no statistically significant relationship indicating that changes in index and swap fund positions have increased market volatility.”
  

 

 

 

HM Treasury. “Global Commodities: a long term vision for stable, secure and sustainable global markets.” (June 2008): 25.

• “Nevertheless, taken together the available evidence suggests that derivative investors are not driving price increases and, although there is insufficient evidence to conclusively rule out any impact, it is likely to be only small and transitory relative to fundamental trends in demand and supply for the physical commodities.”
  

 

 

International Monetary Fund (IMF). “World Economic Outlook: Financial Stress, Downturns, and Recoveries.” World Economic and Financial Studies (October 2008).

• “…the current commodity price boom has, broadly speaking, reflected the interaction of strong demand, low inventory and spare capacity levels, slow supply expansion in key sectors and adverse supply shocks.”
  
• “Despite recent financial innovation in commodity markets, such as indexing, which has allowed investors to benefit from rising commodity prices without having to maintain physical inventory holdings, there is little discernable evidence that the buildup of related financial positions [in commodity markets] has systematically driven either prices for individual commodities or price formation more broadly.”
  
• “Indeed, many commodities without significant futures markets – such as iron ore and rice – have experienced more price appreciation than those with sizeable future markets, such as gold and crude oil.”
  
• “…The results [of research] indicate a positive but weak relationship between return volatilities and the extent of financialization, suggesting that price volatility may be better linked to other variables, such as market tightness, stock levels, or geopolitical risks.”
  
• “…although financialization may have led to increases in comovement between some commodities, particularly with respect to gold, no apparent systematic connection is found to either price volatility or price changes. These findings are consistent with recent studies in the area by the CFTC and others. Thus, there is little evidence to suggest that trading in futures markets has driven the price run-up or has destabilized the commodity markets during the first half of 2008.”
  

 

 

G-20 Study Group on Commodities. “Report of the G20 Study Group on Commodities under the chairmanship of Mr. Hiroshi NAKASO.” (November 2011): 6, 29-31.

• “…Greater investor participation can be expected to enhance the functioning of markets by adding depth and liquidity. This should help producers and consumers to hedge price fluctuation risks. Greater participation of financial investors can also aid the development of long-term commodity futures, which would facilitate risk management and planning over longer time horizons. More generally, participation of well-informed financial investors may enhance the quality of price signals.”
  
• “Assessments of the impact of financial investors on commodity prices remain inconclusive. Large changes in physical supply and demand provide plausible explanations for commodity price trends over the past several years and existing literature finds limited signs of investors causing sustained deviations from ‘fundamentals’.”
  
• “…Greater participation by financial investors in commodity futures markets can bring important economic benefits by improving market functioning. More specifically, markets become deeper to the extent that financial investors take offsetting positions to other market participants or engage in market making. Enhanced market liquidity can also help to accommodate the hedging needs of producers and reduce their hedging costs. Moreover, growing financial activity can promote the development of markets for longer-term futures, facilitating risk management and planning of commodity producers and consumers over longer time horizons.”
  
• “The large changes in physical supply and demand conditions provide plausible explanations for commodity price swings…Moreover, the prices of commodities that are only traded OTC and not included in the standard commodity indices — such as coal and iron ore — have risen as much as major commodity index components. This may suggest that changes in physical demand and supply, rather than growing financial investments, have been the main drivers of commodity prices.”
  
• “The results of empirical studies are inconclusive regarding the impact of financial investors on the level, volatility and correlation of commodity prices. There is limited evidence that financial investments have had a persistent impact.”
  

 

 

“Back to the Futures.” The Economist, September 17, 2011.

• “There is good reason to worry that position limits will harm markets more than help them…Investors will become pickier about the contracts they enter into as a result of the limits, which may cause markets to become less liquid, worsening volatility rather than reducing it.”
  

Bohly, Martin T and Patrick M. Stephan. “Does Futures Speculation Destabilize Spot Prices? New Evidence for Commodity Markets.” University of Muenster Working Paper Series (July 24, 2012).

• “…whether the speculative impact on conditional volatility has increased…with respect to six heavily traded agricultural and energy commodities, we do not find robust evidence that this is the case. We thus conclude that the increasing finanancialization of raw material markets has not made them more volatile.”
  

Dunn, Michael V. “Public Meeting on Proposed Rules Under Dodd-Frank Act.” Opening Statement, January 13, 2011.

• “To date, CFTC staff has been unable to find any reliable economic analysis to support either the contention that excessive speculation is affecting the markets we regulate or that position limits will prevent excessive speculation.”
  
• “There has been the suggestion by some that once we set position limits on physical commodity derivatives, the price that we pay for gas, bread, milk and other things would inevitably drop, and that volatility in commodities markets would simply cease to exist. I believe this is a fallacy.”
  
• “Price volatility exists in markets that have position limits and in markets that do not have position limits. Price volatility exists in markets that have substantial participation from index funds and markets that do not have any index fund participation whatsoever.”
  
• “As Nobel Prize winning economist Paul Krugman pointed out in a recent editorial, price volatility exists in our markets because we live in a “finite world” where there is not, at any given moment in time, an inexhaustible supply of oil, wheat, milk or other physical commodities to meet the global demand for such products. Simply put, sometimes prices are higher because the demand for a product around the globe is greater than the supply.”
  

 

Technical Committee of the International Organization of Securities Commissions (IOSCO). “Principles for the Regulation and Supervision of Commodity Derivatives Markets: Final Report.” (September 2011): 9.

• “..The Task Force’s 2009 review of available literature led it to conclude that existing economic research “[did]” not support the proposition that the activity of speculators has systematically driven commodity market cash (physical) or futures prices up or down on a sustained basis.”
  

Technical Committee of the International Organization of Securities Commissions (IOSCO). “Task Force on Commodity Futures Markets: Final Report.” (March 2009): 7, 10.

• “These reports suggest that economic fundamentals, rather than speculative activity, are a plausible explanation for recent price changes.”
  
• “The empirical regularity disclosed by these studies is that financial participants do not trade in advance of price changes, but rather trade in response to past price changes.”
  

 

European Commission. “First Interim Report on Oil Price Developments and Measures to Mitigate the Impact of Increased Oil Prices.” (September 2008)

• “Both the oil price increases seen in recent years and the price fall over the past weeks have been mainly driven by demand and supply factors.”
  
• “Linked to the expected evolution in market fundamentals, which it characterized as an essentially positive feature of the market, facilitating price discovery and risk management for the investor, while providing a timely signal of the need for adjustments in structural supply and/or demand in the market” [while]…The second type of speculation can result in the emergence of a speculative bubble, reinforcing the fundamentals-based (and usually upward) price trend”
  

 

FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF. “Price Volatility in Food and Agricultural Markets: Policy Responses.” Policy Report (June 2, 2011): 22.

• “Speculators are necessary for the performance of both these functions [transferring price risk and facilitating price discovery]. They buy and sell futures contracts and take on the risk of price fluctuations…By doing so, they provide the market liquidity which enables commercial hedgers to find counterparties in a relatively costless manner. Too little non-commercial participation results in low liquidity and potentially in large seasonal price swings.”
  

 

 

 

 

 

Till, Hillary. “Who Sank the Boat?: Response to the Finance Watch paper ‘Investing Not Betting’.” EDHEC-Risk Institute (June 2012): 2, 8, 27.

• “We conclude by noting that modern commodity futures markets are the result of 160 years of trial-and-error efforts. Before performing surgery on these institutions, we suggest that Finance Watch’s supporters tread carefully and not adopt “speculative” regulatory proposals whose ultimate effects are unknown. We further recommend that European Union policymakers instead consider studying market practices globally and then adopt what is demonstrably best practice, rather than invent new untested regulations.”
  
• “What then is the economic role of commodity speculation and its value to society? Ultimately, successful commodity speculation results from becoming an expert in risk bearing. This profession enables commercial entities to privately finance and hold more commodity inventories than otherwise would be the case because commercials can lay off the dangerously volatile commodity price risk to price-risk specialists. Those commercial entities can then focus on their areas of specialty: the physical creation, handling, transformation, and transportation of the physical commodity.”
  
• “The more speculators there are, the more opportunity there is for commercial hedgers to find a natural other side for hedging prohibitively expensive inventories. This in turn means that more inventories can be economically held. Then with more inventories, if there is unexpected demand, one can draw from inventories to meet demand, rather than have prices
  

• spike higher to ration demand.”
  
• “…proposals in restricting speculation fall somewhere in the continuum of being a placebo to actually being harmful to the goals to which they aspire.”
  

 

So the sources I brought up are more credible than yours, so there.

 

It's simple, try thinking for yourself for a change. If you have two test cases, and they are both trading on the very same product. Test A has 100 market participants, and Test B has 10,000 participants, in which Test will the market be more apt for volatile conditions? It's not rocket science, the more market participants the less volatility.

 

The only way that a market could have less volatility with less participants is if you agree with the premise that in the market with more participants are uniformely trading with one another on a consistent basis. That's simply illogical. Or that there is collusion going on between the largest Financial players, and that they are consistently manipulating the market. Well, until there is proof that states otherwise, I won't base any hypothesis on crackpot conspiracy related theories.

Edited February 18, 2013 by Magox

[TPS]

 

 

Oh, so we're gonna play the "Since I can't back up my own hypothesis, I will find someone who does" game?

 

Fine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

So the sources I brought up are more credible than yours, so there.

 

It's simple, try thinking for yourself for a change. If you have two test cases, and they are both trading on the very same product. Test A has 100 market participants, and Test B has 10,000 participants, in which Test will the market be more apt for volatile conditions? It's not rocket science, the more market participants the less volatility.

 

The only way that a market could have less volatility with less participants is if you agree with the premise that in the market with more participants are uniformely trading with one another on a consistent basis. That's simply illogical. Or that there is collusion going on between the largest Financial players, and that they are consistently manipulating the market. Well, until there is proof that states otherwise, I won't base any hypothesis on crackpot conspiracy related theories.

we should've stopped a few pages ago when I said I agreed with most of what you said. :-)

Your example is too simplified. The change is this: in either markets, who will dominate price when 80% of traders are commercial vs when 80% are financial? Once markets become dominated by speculative forces they become subject to bubbles or herd mentality like all financial markets. It's pretty clear there were two commodity bubbles, one in 2008 and the QE bubble of 2010-11. This doesn't preclude that prices haven't been influenced by factors you have mentioned. Personally, I think sophisticated investors have learned that their actions can put the brakes on their long bets by causing demand destruction, so we won't see extended price rises, unless justified by the fundamentals, like the previous two bubbles.

[Magox]

The change is this: in either markets, who will dominate price when 80% of traders are commercial vs when 80% are financial? Once markets become dominated by speculative forces they become subject to bubbles or herd mentality like all financial markets. It's pretty clear there were two commodity bubbles, one in 2008 and the QE bubble of 2010-11. This doesn't preclude that prices haven't been influenced by factors you have mentioned. Personally, I think sophisticated investors have learned that their actions can put the brakes on their long bets by causing demand destruction, so we won't see extended price rises, unless justified by the fundamentals, like the previous two bubbles.

 

These "bubbles" that occur are very transitory. They always get corrected, and they don't remain up or down there for long. The $147 Oil bubble was a headline. No one paid that price at the pump. The only reason why it got up there (which it was there for less than 3 minutes) was because one of the large investors got rolled shorting the markets and placed a huge bet against it. They went down, had to close out their positions, and there was a ton of short covering that went on and it snowballed to other short positions following suit. It would be one thing if the prices remained up there, but they didn't. Market sold off rapidly, and anyone buying oil north of $135 a barrel that didn't close out their positions rapidly got crushed.

 

That's the nature of the markets.

Edited February 18, 2013 by Magox