The price of copper has historically foretold the fate of the economy.

More crude oil in storage on tankers than in over 20 years.

TK, did you see 60 Minutes this past sunday?  They were saying pretty much the same thng you were saying about the bubble/burst period.  They are talking about how banks and investment groups got into oil/commodity trading and overinflated the prices.

Someone's finally listening. :>)

JF,

Like I said a long time ago.
This commodity trading is criminal.
Unions, pensions and money management Funds are investing consumer/customer  money in commodities. Inflating the price of product for their own future.

What is the purpose?
Well, the only obvious one is the collection of commissions.

If  the consumers money is invested in products that only serve to inflate the cost of living.
How does the consumer gain?  

Gottschalks Bankrupt reorganization today.

I would go shopping at the Gottschalk's in Fresno (at the mall on Blacktsone) and I couldn't believe the prices they were charging for that crap.   That place was a glorified swap meet.

They are talking about how banks and investment groups got into oil/commodity trading and overinflated the prices.

True.

Natural commodity price swings are highly amplified by speculative trading, but are not the source driver of the pricing trends.

As  commodities supplies come under stress, the bid price increases. Expectation of tight supplies results in speculation of further price increases, and amplifies the upward spike in prices.

Once actual demand falls, speculative long positions collapse, and the price swing downward overshoots once again, mostly as a result of panic selling of positions

Speculative markets are driven more by emotion ( greed and fear), than they are by logic.

In times of supply surpluses, speculation can not drive up the price.

And, in times of supply shortages, speculation can not drive down the price.

Speculators can exploit and amplify market trends, but can not set prices long term.

This has been obviously proven recently by the crash in real estate and commodity values.

Unions, pensions and money management Funds are investing consumer/customer  money in commodities. Inflating the price of product for their own future.

The present trend short term is highly deflationary. The actual result of unwise speculation by  managed hedge funds is the present loss of over 30% of total capital value in pension funds nation wide.

The very long term natural pricing trend for all commodities is bullish (higher prices), due to demographic trends (an ever increasing population), long term commodity (resource) depletion, and continuing long term  monetary devaluation.

Don,
Yes the pension funds and hedge funds have lost huge amounts of money.
In other words. In addition to fees paid and the inflationary results of these firms investing in commodities. The consumer has lost  a large portion of their initial investment.

But unfortunately. Other than gasoline. There has not been much deflationary effect on products consumed by the consumer.

The value of homes have come down. But that is a draw on equity.  Not a plus
Even when loans loosen up a bit. The lowered prices are not going to effect a huge number of purchases.
Those that could truly afford a home. Have for the most part already purchased a home.

There will have to be a dramatic population explosion and increase in wages before things will change.

A population explosion seems inconceivable when you consider the ageing of the baby boomer.  

It maybe a long time coming.

There is always hope.
Jr. ran a nation on hope for 8 years.

There will have to be a dramatic population explosion and increase in wages before things will change.

A population explosion seems inconceivable when you consider the ageing of the baby boomer.  

Commodity demand is world driven, not just local. The population explosion ongoing in India, the Mid East, and Asia will bring demand roaring back sooner rather than later. The continuing industrialization of the Third World accelerates commodity demand even faster than raw population numbers.

China is the worlds biggest user of copper, even though average per capita income there is just $2,000 per year.

But there are lots and lots of chinese people :)

Don,

That part of my post was with regards to the U.S. housing market.

 Myth: Government Spending ‘Stimulates’ the Economy

It's just an excuse for politicians to dole out other people's money.

November 21, 2008 - by Daniel J. Mitchell

Whenever the economy stumbles, politicians and interest groups commonly argue that government spending should be increased. Based on a theory known as Keynesianism, this increase is supposed to boost economic performance. Yet the notion that bigger government leads to more growth is both theoretically unsound and empirically false.

This strange theory was first put forth back during the 1930s, when America was suffering from a deep downturn. An economist named John Maynard Keynes argued that the economy could be boosted if the government borrowed money and spent it. According to this Keynesian approach, this new spending would put money in people’s pockets, and the recipients of the funds would then spend the money. This would, according to the theory, “prime the pump” as the money began circulating through the economy. The Keynesians also said that some tax cuts — particularly lump-sum rebates — could have the same impact since the purpose is to have the government borrow and somehow put the money in the hands of people who will spend it.

So is this the right recipe to boost a flagging economy? Keynesian theory sounds good, and it would be nice if it made sense, but it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can’t inject money into the economy without first taking money out of the economy. Put more bluntly, Keynesianism only looks at one-half of the equation. It conveniently ignores the fact that any money that the government puts in the economy’s right pocket is money that is first removed from the economy’s left pocket. As such, there is no increase in what Keynesians refer to as aggregate demand. The bottom line is that Keynesianism doesn’t boost national income, it merely redistributes it.

The people who lend the money to government generally are not the same people who get money in their pockets because of the new spending or tax rebates, but that’s not important. The Keynesian theory is based on the notion that there will be an increase in overall spending power, yet that clearly is not the case. Some advocates of this theory get a bit more creative and say that Keynesianism works because it increases consumer spending rather than the money sitting idle. But money that is unspent by consumers does not sit idle. It winds up in the banking system someplace and is used to finance investment spending. So-called stimulus programs, at best, shift how national income is used so that more gets consumed rather than invested, but at noted earlier, there is no increase in overall economic output.

It is worth noting that government could finance new spending through inflation. Thankfully that option doesn’t seem to be on the table since almost all politicians now realize that it would be foolish to mimic the disastrous policies of basket-case economies such as Argentina and Zimbabwe.

The real-world evidence also confirms that Keynesianism is a failure. Indeed, it was a failure even before Keynes published The General Theory in the mid-1930s. In his four years, Herbert Hoover was a poster-boy for big government. He increased taxes dramatically, including a boost in the top tax rate from 25 percent to 63 percent. He imposed harsh protectionist policies. He significantly increased intervention in private markets. Most important, at least from a Keynesian perspective, he boosted government spending by 47 percent in just four years. And he certainly had no problem financing that spending with debt. He entered office in 1929 when there was a surplus and he left office in 1933 with a deficit equaling 4.5 percent of GDP. Needless to say, Hoover’s big-government Keynesian experiment was not very successful since growth went down and unemployment went up.

Unfortunately, other than being a bit more reasonable on trade, Roosevelt followed the same approach. The top tax rate was boosted to 79 percent and government intervention became more pervasive. Government spending, of course, skyrocketed — rising by 106 percent between 1933 and 1940. This big-government approach didn’t work for Roosevelt any better than it did for Hoover. Unemployment remained very high throughout the 1930s and overall output did not get back to the 1929 level until World War II.

Other Keynesian episodes generated similarly dismal results, though fortunately never as bad as the Great Depression. Gerald Ford did a Keynesian stimulus focused on tax rebates in the mid-1970s. The economy did not improve. But why would it? After all, borrowing money from one group and redistributing it to another group does nothing to increase economic output. Tax cuts only boost the economy if they reduce the tax penalty on work, saving, and investment — i.e., lower tax rates, not gimmicks.

More recently, George W. Bush gave out so-called rebate checks in 2001 and 2008, yet there was no positive effect in either case. And Bush certainly was a big spender, yet that didn’t work either. Not that this should be a big surprise. Surveys of the academic literature reveal that even left-wing international bureaucracies are producing research showing that bigger government hurts economic performance by misallocating national resources.

Japan’s experience also shows the foolishness of Keynesianism. Throughout the 1990s, Japanese politicians tried to use so-called stimulus packages to jump-start a stagnant economy. But the only thing that went up was Japan’s national debt, which more than doubled during the decade and now is far above even Italy when measured as a share of GDP. The economy, not surprisingly, remained stagnant.

If Keynesian spending doesn’t make sense from a theoretical perspective, and also fails every time it is tried in the real world, why do politicians keep trying the same approach? Your guess is as good as mine, but the answer probably has something to do with the fact that politicians love to spend other people’s money, and Keynesianism is a convenient rationale.

Various Comments:

President-elect Obama didn’t get where he is by promising good economic policy; he succeeded by promising to “spread the wealth around.” The Dems can’t wait to pass an “ecomonic stimulus” package. Some may still believe in Keynesian economics (and the Tooth Fairy), but I suspect that they believe more strongly that the people who get the “stimulus” checks will be grateful and will return that gratitude at the polls in 2010. Almost every Dem program is designed to make government bigger and thus make more people dependent on government. It’s not the economy; it’s politics as usual. The “Change we can believe in” will be a change to bigger government. You can take that to the bank.

What is even more interesting is that if you look at the GDP output for the era, the US recovered by 1936-37 (including the pre-1927 growth rate) and was then hit with the price tag for all the New Deal starting in 1938 which caused a recession. Combine that with the unemployment figures, however, and you get the result of each person employed being more productive, which is one of the effects of getting rid of inefficient businesses: those that survive or start-up with new manufacturing methods employ fewer people, but produce more goods at a lower cost.

When you get to WWII the New Deal retirement system kicks in just as the economy needs every worker of older age that it can get: from that you get the ‘temporary’ tax benefit to private firms to offer health insurance, which was previously a ‘perk’ to high paid employees and executives. That temporary relief became a permanent problem, so that we now spend more today, per person and adjuste for inflation, than our grand parents did on health care. It isn’t that procedures are too expensive, it is that health care is subsidized which sets a minimum floor of pricing due to insured payments and government encouraging increases in payments through the government run health benefits plans. It isn’t that so many people are ‘uninsured’ (and what an awful way to pay for something) but that so many *are*. Insurance only works if a pay-out happens rarely - and that is not the case with health insurance… but then learning that subsidies cause over-use of whatever is being subsidized is something politicians love to ignore, across the political spectrum.

Why even bother pointing this stuff out? Those of us who understand basic economics have been thinking and saying this stuff for years, while those who don’t have minds that are simply impenetrable to basic logic. They don’t care about “facts,” they only care about emotions - and after all, to them, the economy is nothing more than a stage on which to act out all of their favorite morality plays about “greed” and “sharing.”

I’m no economic expert but I can see immediately why increased public spending doesn’t work. Here’s something else which occurs to me (although I could be wrong - someone might set me straight if I am):

If you seek to stimulate the economy by taking money (capital) out of the hands of the producers and putting it in the hands of consumers, then don’t you limit the ability of the producers to increase production to cope with the higher consumer demand you’re trying to create? In other words, what’s the point of boosting spending power if at the same time you cripple manufacturing power? Surely there’s no point increasing consumer spending unless you actually have the goods available to back it up. Or else, more dollars chasing the same number of goods = increase in consumer prices, and nobody’s any better off (that’s before you start factoring in the loss in potential jobs created as a result of the confiscation of capital).

More:

1. Recessions happen regardless of who is living in the White House.

2. Congress, completely controlled by Democrats over the past two years, sets Federal spending and taxes. The President only has the power to sign or veto. I agree that Bush should have done a lot more vetoing.

3. My company, like most others, is waiting to see how the Democrats are going to govern. Are corporate taxes going up? If so, our investments are going abroad. Are we getting some bailout money? Regulations? Environmental requirements? Who knows? Businesses are not going to invest or grow until those questions are answered.

4. FDR and Hoover’s tax and spend strategies put the “Great” in the Great Depression. Who knows when it would have ended if WWII had not come along.

Keynesian stimulus works nicely if it’s applied to assets — the interstate highway system and TVA come to mind. When it’s strictly redistributionist “give to the poor”, it contributes to unproductive resource allocation (malt liquor, etc.) and becomes a drag on the overall economy. When applied to dumbass government priorities (e.g. Carter’s synfuels boondoggle), it has the double effect of allocating resources to useless money pits and staffing the agencies with politically connected useless people.

Further food for thought:

It seems theoretical intellectualism is the comforting process of taking real-world complexity to a simplified and reduced size; –allowing quicker and easier comprehension — even though these theories are most likely to be wrong because theory cannot account for all real world complexity (The “sciences” of humanities including theories of economics and finance)

We acquire a certain base theoretical framework externally — that big picture outline— for organizing the details into a seemingly coherent whole. After personal modification suitable to our temperament and aptitudes, we love the edifice of our theoretical creation — never mind if facts contradict.

Now, try to see if these solid historical facts can be explained within the theoretical framework that guides your perspective.

In spite of all the circumlocution and commotion by President Roosevelt, the 1930s President never came close to ending the depression economy. The massive deficit spending of World War II did end the depression economy and set it upon the road to postwar prosperity.

Consider World War II from an economic viewpoint. It was a huge public works operation financed by unprecedented deficit spending. It commandeered the productive capacity of this country and then destroyed this production in the battlefield. Why didn’t this bankrupt the country? Theoretically, an operation like that should have bankrupted the country like a “closed system” business operation would have been bankrupted. (Fortunately, free-market capitalism at the macroeconomic level is “open system”)

One can only imagine the derision and criticism had anyone of stature, in the 30s, proposed such a program to end the depression economy. But there’s no denying that World War II deficit spending did do it. Until one has a theoretical framework that can satisfactorily explain why World War II, not only did not bankrupt the country, but was the key factor in economic recovery — all one can do is bewail the problem without offering any solutions that will work.

Unfortunately, we’re testing this bogus theory again. How interesting. I believe that, during the great depression, most of the tax increase occurred in ‘32. I haven’t figured out why Mr. Hoover, after holding the line for several years, would decide to raise taxes in an election year. It doesn’t seem to make any sense from the practical perspective of trying to get re-elected, but it probably seemed like a good idea at the time.

Unfortunately again, it would seem to be crunch time for these theories. The half of Mr. Poulson’s 700B TARP funds which he’s already spent shoring up banks, including the one where he used to work, seems to have been vaporized already by short sellers. Too bad Mr. Cox is a fool on the subject of short selling and uptick rules. Maybe we should ask Robert Mugabe to take over at the Treasury, but then they seem to be following his policies anyway…print money. After all, my fellow Republicans seem to have vaporized more wealth through ineptitude than Mugabe has by design. For what they’ve lost they might have purchased Uganda lock stock and barrel. Now the Democrats are going to try to outdue the present crop of nitwits. Throw money at the Big Three, now there’s a novel idea. Amtrack only managed to sublimate 13B in a decade. GM and Ford will easily go better in a quarter, or maybe even a month if they really work at it. Oh yes, then raise taxes and abrogate NAFTA, starting a trade war with Canada. Charming. Can you spell Smoot-Hawley?

During WW-II, there was massive increase in destructive consumption as you describe, but also a massive increase in capital investments, the net result was a stagnant economy for the individual. After the war, the capital investment was already in place, and the “destructive” consumption ceased. Individual productivity, forced upon the economy by manpower shortages, and amplified by the capital investment, rose to unprecedented heights. We were able to sell our production for a profit instead of blowing it up.

Ultimately, it was the increase in worker productivity, enabled by capital investment that ended the Great Depression. Let us see how well worker productivity fares with “stimulus checks” drawn at the expense of capital investment this time around. It has never worked before, but I hear that since the “right” people are in charge now, it is bound to work this time.

The only thing that is known to truly work is to lower taxes and help small business create jobs. Reagan had it right. The Stock Market approves because capital starts to filter down into the economy, the government approves because they receive more revenue from increased production and consumer spending, and the people approve because they get to go back to work. Government welfare programs don’t kickstart anything, they only seem to prolong a recession; FDR proved that!

“Why do politicians keep trying the same approach (Keynesian spending)?: Political power stems from control of spending. The more spending, the more political power, the greater the politician’s wealth. Witness Senator Steven’s house repair and Senator Obama’s additional lot size and book contracts.

Fiat money inflation (temporarily) benefits only those who are first to get the new currency - the politicians and their friends. From there, as the purchasing power of the dollar declines, each successive receiver and holder of dollars gets successively more shortchanged for his past real labor and savings. This is why counterfeiting - whether legalized or not is always morally wrong; it’s theft!

Mr. Peachey’s arbitrary floating abstractions need to be concretized - i.e., tied to perceptual reality. Fiat does not create real sustainable, stable, reliable value; only production of real, not fiat, goods and services can create real wealth.

This is the root problem of the mainstream modern economics profession: virtually no economist studies the root of economics - production and trade by individuals and incorporations. They’re too busy studying consumption for the statist folly of concocting ever more impossible schemes to centrally “plan” and manage” the flow of billions of individual trades.

Read J. B. Say, and learn, as Ayn Rand put it, that “When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others… Destroyers seize gold and leave its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.” [like the FED] “Gold was an objective value, an equivalent of wealth produced. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked ‘Account overdrawn.’”

We need to return to free banking and privately issued, competing currencies. Then the quality of our money would be restored and its value would again be objective - set by millions of individual traders every day instead of by the whims of 12 Fed governors every 6 weeks.

Of course, the statists demand a monopoly on the issue of currency because if they had to compete with REAL money, they be out of business in a week and their giant looting scheme would be over.

Under a free market, only reckless fools would take Federal Reserve IOU Nothings in payment for their hard work. Abolish the Fed.

The cut-and-pasted author seems to think that "money" is some tangible thing which has a finite supply, like the string in your cupboard.  That's *HIS* logical flaw.

.

The massive deficit spending of World War II did end the depression economy and set it upon the road to postwar prosperity.

Previous deficit spending had already done that--although WWII "helped," of course--since FDR didn't spend *ENOUGH*.

.

Let us see how well worker productivity fares with “stimulus checks” drawn at the expense of capital investment this time around.

The problem we are faced with at the moment is largely due to the fact that worker productivity has increased significantly in recent years with *ZERO* accompanying growing in middle-class income.  And without that increase in income, nobody's buying the shoes to make a new shoe factory necessary.  (Unless you do something stupid like blow a great big housing bubble, allowing strapped homeowners to borrow huge sums against putative equity in order to buy those shoes and big-screen TV's.  When the bubble bursts, you have...2008.)

Anyone quoting Ayn Rand on economics is highly suspect from the beginning--she cribbed from Little Orphan Annie comic strips.

For a *REAL* economist's take on the matter:

http://www.nytimes.com/2009...

(Sorry that he doesn't write about economics in his pajamas like Chico's guy, but he *DID* just win a Nobel Prize.)

Chico,

You going to insist on being the last man standing in support of Reaganomics and trickle down?

Myth,

Jr.’s Rebate checks were intended to stimulate the economy.

Fact,
Bush’s rebate checks were intended to redistribute taxpayer money to the $4.50 /gallon petro Czar gas pumps.
The rebate checks did not stimulate. Because they fell short of the drag on the economy put in place by the increase in energy costs.

Myth: Government Spending ‘Stimulates’ the Economy

If this statement is true, the housing boom never happened, nor did the economic “expansion” claimed for the Reagan years.

Create money through debt, add it to the money supply, and business expands temporarily. 

It’s irrelevant how the money is created to have the same effect.

Reagan used classic Keynesian methods by running huge deficits. The red ink was covered through the issue of more government debt. Government spending stimulated the economy. Only problem was, most of the new money was spent on weapons, instead of new productive capacity.

Or, you can lower banking reserve requirements, and debt created money flows into the economy. This is what happened 2000 to 2007. This is still government spending, since the issued debt is backed by the Federal Reserve, in the form of government treasury bonds. The people are forced by law to pay the interest in the form of income tax.

It overlooks the fact that, in the real world, government can’t inject money into the economy without first taking money out of the economy.

Really ?  The government has been injecting money for decades. The national debt is now over 10 trillion dollars. The debt exists because the government injected money without first removing it from the money supply.

The key is how the newly created debt derived capital is deployed.

Debt used to create new productive capacity is self liquidating. If that were not true, most businesses in America would go bankrupt in short order. Borrow to buy a $10,000 machine. Machine produces in excess of $10,000 net profit. Debt has self liquidated. That’s capitalism.

If, on the other hand, the funds (new debt) are used to buy weapons, pay bonuses, or buy any form of adult toys, the debt becomes a crushing burden.

And yes, it does tend to redistribute wealth.

Under pure darwinian capitalism, one person winds up with all the money eventually.

Is that a benefit to society ?

 
Like I said a long time ago.
This commodity trading is criminal.
Unions, pensions and money management Funds are investing consumer/customer  money in commodities. Inflating the price of product for their own future.

Glad to see that you finally realized that it wasn't the evil Petro Czars that ran the price of oil up....In fact, the oil companies were the only ones that were taking physical delivery of the commodities they were dealing in.  Only 15% of the commodities contracts actually resulted in delivery of oil.  The unions and teachers pension funds were gaming the system.  And what did the worst rated congress in history do?  Nothing, other than to try an impose a windfall profits tax on the only people who were actually using the commodity market for what it was designed to do.  Oh, and they bailed out the 85% (unions and teachers) who used the commodities market as a casino with no limit and no requirement to pay for their losses.  So, now smaller oil firms and refineries are going bankrupt because their credit lines were tied to oil prices...... Thanks Congress. Heaven forbid they ever regulate a union and their pension fund....

And now they are going to spent $160 million for the inauguration, the most EVER. Granted BHO has 'indicated' some of his 'fund' money will pay for some of it. Why is it necessary for all that hoop-la? Why not just swear him in, he says a few words and everybody goes home. With the economy tanking, people with no jobs and no homes, businesses going belly up and D.C. wants a $160 mill party?  That's just not right.

Actually, FEMA is going to pay for it, as Bush has declared DC a disaster area.  So, it won't cost a dime.  FEMA is handling it.  After all, this is an historic inauguration....

Question..  Why is this inauguration historic?? Cause Barry is a woman?? No, last I heard he had a penis... Cause Barry is a Democrat?? No, other Dems have been elected President.  Cause Barry is from Illinois??  Can't be that, Lincoln was from Ill...  Is it cause Barry won the election by a landslide?? No, Reagan  won 49 states...Hmmmm I just can't put my finger on why this is such an historic inauguration....Oh, I got it.  Barry has a tan!!!!  Thats why this is so historic. THis is the first time a man with a tan has been elected president..... Now I understand why this is such an historic event, worthy of $160,000,000 being spent.....Me gots to get me one of them plates with Barry and Mrs. Eds pictures on it, that they are hawking on QVC..

Mexico,
I haven’t changed my position. Go back through my blog and you will see I have blamed pensions and hedge funds among others for this same problem.

But the petro Czars were complicit in this scheme.
As you said, the speculative contracts amount to less than 15% of delivered oil. Yet Shell and the other petro czars book the contract price as if it was reality. They book the contract price even when it is their own oil, pumped from their own fields. They book this contract price even as the speculators contract oil sits paying rent in Cushing. Begging for a buyer.

They then rape the consumer.

I will give the Saudi’s a partial pass. They said through out the entire build up. That there was no fundamental reason for the rise in price. They said over and over that supply was adequate.  They said the entire time that the run up was based solely on speculative greed.

Over a year ago I told you the price of crude would break below 40 bucks. I told you that 70 dollar price would be fair but that the speculators had destroyed fairness. I told you that the economy would not survive 4 buck oil.

It’s all in my blog, for all to read.

 As you said, the speculative contracts amount to less than 15% of delivered oil.

NO, I said of all the contracts transacted, only 15% of them actually resulted in delivery of oil.  And 100% of that was by oil companies.....  You blamed the oil companies for the run up in prices, yet it was the money hungry union thugs who wanted to use the commodity markets as a roulette wheel.....

 Yet Shell and the other petro czars book the contract price as if it was reality. They book the contract price even when it is their own oil, pumped from their own fields. They book this contract price even as the speculators contract oil sits paying rent in Cushing. Begging for a buyer.

What in the hell are you talking about??  If Shell has a month to month contract to supply 10000 bbl/day of oil to an independent refinery at the WTI NYMEX crude oil price less a fixed differential of $8.10, then that is the contract price they get for the oil.  That is the price the refinery pays on the 20th of the month following delivery.  Even if they sell it to their own refinery, it gets booked at whatever sales price the Shell Exploration and  Production has with Shell Oil Products.  And it isn't going to be a whole lot different than the WTI NYMEX adusted  for API gravity.  So if the union speculators drive up the WTI price to $120, then that is what the oil is worth, regardless if it only cost them $5 to produce it....The union pension funds are now holding the bag for contracts at $120/bbl for oil that is now only worth $40. But Obama will give them some TARP money to make up for their losses...Meanwhile, independent refiners go out of business..

Question..  Why is this inauguration historic??

Because it marks the end of the worst presidential administration ever.

Mexico,

WTI NYMEX


That is exactly what I am talking about.
WTI NYMEX, is the speculators price. It is not a price based on supply or demand. It is based on the bids of speculators.

That is why crude is $35/barrel today. Even though supplies today are LESS than a year ago when prices were on their way up to $145/barrel.

Speculators have been forced out of the commodities market by losses in the stock market and redemptions by investors.

It is no different than if you and I agree,  you will buy my radio for 1 dollar less than the stated value of my radio based on bids received tomorrow. Then I get my brother to place a bid of 1 million dollars.

You now have a valid contract and are stuck with the price.

But this doesn’t bother you. Because you actually have a radio factory. And the value of the radios you produce.  All billion barrels full of them. Has now been artificially increased to 1 million dollars per radio.

You play the victim. But in fact have contrived with me to artificially enrich both of us.

When I tried to explain to Mattloch & Tk, others how much of an effect the speculators had on the then $147 per bbl oil price, they laughed.

Now TK is parroting the speculator's influence on the price of oil.

Funny how situational ethics work

Even for a veritable "wordsmythe"

An intellectual Herve' Villechaize as it were....................

Chico,
You better go back and  look at my  blog history.

You knew nothing of the crude market until I introduced The EIA site to you. Remember you said  ‘The Bakken’ was impossibly thick tar sands?

You knew nothing. Or at least feinted ignorance of the effect of speculators on the commodities market.

You may remember my remark that you would not be able to afford to transport your cattle at $1 buck a lbs on the hoof and  diesel at $4/gallon.

Remember you said crude was going to $200/barrel.
I said $40. 

Chico,

Crude down to 33.73

Cheezzz, I missed on my prediction also.

Quotes from TKozy

That is exactly what I am talking about.
WTI NYMEX, is the speculators price. It is not a price based on supply or demand. It is based on the bids of speculators.

Crude down to 33.73

So Tk, where did you get the $33.73 price?? From the WTI NYMEX??

So if the WTI NYMEX is just for speculators, just what market do you propose the Evil Oil Czars sell their oil?? On the street corner??

So the  WTI NYMEX  price in july was based on speculators, but now it is based on supply and demand???

 It is no different than if you and I agree,  you will buy my radio for 1 dollar less than the stated value of my radio based on bids received tomorrow. Then I get my brother to place a bid of 1 million dollars.

You now have a valid contract and are stuck with the price.

But this doesn’t bother you. Because you actually have a radio factory. And the value of the radios you produce.  All billion barrels full of them. Has now been artificially increased to 1 million dollars per radio.

So what is your brother going to do with his $1,000,000 radio??  Did he actually take delivery of the $1,000,000 radio, or did he sell his right to buy  the radio at $1,000,000.??  Does idiocy run in the family?? Cause I am selling my radios for $40 each. All one billion of them, cause I can't find any suckers like your brother that will pay $1,000,000 for it and actually take delivery.  I suspect that when your brother realizes the $1,000,000 radio is really only worth $40, he might have some explaining to do to yo mama....

Mexico,

I Kinda of like the idea of Capitalism.
I want supply and demand. I want  supply and demand limited to only interested parties.
In other words people who actually take delivery. Not to hoarders. Not to those who will hoard a commodity until they create an illusion of a artificial  supply problem.

It is my opinion that the methods used by the speculators to buy contracts. Not crude.
Equate to no more than a monopoly of pricing..

I believe it should be required that a actuall delivery of the product must take place. Before the product can be sold.

Then there are those speculators stuck with $145/crude sitting in Cushing. The loss they would take at today’s price makes the rental of storage space profitable for them.

As long as they can create a faux market problem in the near future.  They’ll be able to pass on their ignorance to the helpless consumer.

If this deception is spoiled, they have losses.  But remember even the total loss of a full tanker at $100/barrel only amounts to $300 million dollars. That is Chump change to the hedge fund.

Yet when the speculators played on the tanker high jacking a month ago. It caused the spike in crude of 5 or 10 dollars. On tens of millions of barrels of crude PER DAY.

And the oil wasn’t ever lost.

Look at the Israeli conflict.
 Saudi Arabia said it would not effect it quotas.
You can almost put the total crude production of Israel and Palestine in a pick-up full of gas cans.

Yet we had a speculators spike in the price of crude.

Shell has experts that know best how to price a barrel of crude.
We don’t need some pimple faced rich daddy’s boy, gambling with the worlds economy.

Mexico,

Your trying to make up for your inability to excuse the petro Czar and the speculator.

If the radio world worked like the Crude speculators. My brother never took delivery for the radio. He  set the price for your contract. Then immediately resold it to me. For a million dollars of course.

Now you were in possession of a million dollar radio. That pleases you to no end.

You discover that a trend has been set.  Radios have now a market value of 1 million. Proof is in your own ledgers. You bought one for a million.
Then so are your billion radios.

But you are such a good guy. You put them up for 40 bucks a piece.

It is near impossible to find a job if you don’t own a radio.
I find out you are selling all your radios for 40 bucks.
I have a limitless supply of cash.
I buy you out I send you on your way to Cabo.
Where you soon go broke because I raise the cost of living for all commodities when I start selling for 1 million dollars,   the radios I bought from you, for a bargain basement price of 40 bucks.

I want supply and demand. I want  supply and demand limited to only interested parties.

In other words people who actually take delivery. Not to hoarders. Not to those who will hoard a commodity until they create an illusion of a artificial  supply problem.

It is my opinion that the methods used by the speculators to buy contracts. Not crude. 

Equate to no more than a monopoly of pricing..

Total world wide petroleum stocks, as of Jan. 13, 2009, are 4.163 billion barrels.

Of this total, 1.52 billion barrels represent government controlled stocks in the form of strategic reserves, unavailable to the market.

This leaves 2.644 billion barrels of stocks held by private and national oil companies. This includes oil in transport, in storage facilities, and pipeline transit product.

Subtract oil in transit, and we have the net storage value of 1.2 billion barrels of oil.

Total world production, including natural gas liquids was 28 billion barrels in 2008.

Total world daily consumption is 87 million barrels per day.

So, total worldwide storage represents just 13.79 days worth of oil supply.

Back in July when prices peaked, this value was 11 days of supply.

It is impossible to create an artificial “shortage” by hoarding, with such a limited amount of available storage .

Shell has experts that know best how to price a barrel of crude. 

We don’t need some pimple faced rich daddy’s boy, gambling with the worlds economy.

Private oil companies have never been able to set market price. The oil business has always been boom and bust.

BTW: The Texas Railroad Commission regulated US, (and world oil prices), for almost 3 decades back when the US was the worlds swing oil producer, by rationing available oil shipping to market. This was done to avoid the total collapse of oil prices, and loss of our private oil industry. Prices remained steady at around $15 per barrel, in constant dollars.

The commission stopped rationing shipping back in 1971, because US production had peaked, and total US production represented just 80% of our consumption.

If this deception is spoiled, they have losses.  But remember even the total loss of a full tanker at $100/barrel only amounts to $300 million dollars. That is Chump change to the hedge fund.

300 million is a huge loss to a Hedge Fund, since most of the money gambled is borrowed, (Hedged), against a market bet.

A typical Hedge Fund  (2007-2008) was leveraged 50 to 1.

So, a 15 billion dollar Hedge fund, hit with a 300 million loss is wiped out, since 300 million represents the total capital in the fund. 

Then there are those speculators stuck with $145/crude sitting in Cushing. The loss they would take at today’s price makes the rental of storage space profitable for them. 

As long as they can create a faux market problem in the near future.  They’ll be able to pass on their ignorance to the helpless consumer.

The speculators are not “stuck” with $145 oil. The original producers are stuck with the oil at the market price.

Most of the price manipulation is derived from the purchase of Options.

An option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a particular asset, such as a piece of property, commodity, shares of stock or some other underlying security, such as, among others, a futures contract. In return for granting the option, the seller collects a payment (the premium) from the buyer.

When the price fell, the Options were simply allowed to expire.

The only loss to the Hedge Fund is the price of the options premium, which can vary from typically 0.5 % to 10%.