Comments on: Nonsense on Speculation

By: Martin Brock

Martin Brock — Tue, 22 Jul 2008 20:33:29 +0000

"... speculation accounts for the price fluctuations ..."

"... the guys generating all of the speculation ... are responsible for the price movements, not the speculators."

These statements are consistent. If I credibly threaten to nuke all the oil refineries in Saudi Arabia, people will immediately begin offering more for credible promises of future oil delivery, fearing a sudden cessation of oil deliveries from a major supplier. This rise in the price of oil is simply inevitable. If you didn't bid up the price, someone else surely would. Blaming these bidders for the rising price is absurd. Obviously, I'm to blame, because I've generated the speculation.

By: vidyohs

vidyohs — Tue, 22 Jul 2008 16:31:35 +0000

martinduck,

First you say:
"however, when Morris says that speculation accounts for the price fluctuations, he's clearly right about that."

then you say this:
"They are responsible for the price movements, not the speculators."
Posted by: Martin Brock | Jul 22, 2008 11:27:50 AM

Either the speculators are responsible for the price fluctuations or they are not.

Which is it martinduck, me bucko? Chose a side, pick a partner, get off the fence, one or t'other ya know?

By: Rudy

Rudy — Tue, 22 Jul 2008 14:09:23 +0000

Thx Don, great response.

Rudy

By: Martin Brock

Martin Brock — Tue, 22 Jul 2008 11:27:50 +0000

The core offending passage is here:

I see nothing offensive or incorrect in this passage, except the attribution of recent price fluctuations entirely to speculation over offshore drilling. Opening more areas to offshore drilling could not much affect the market for oil over the term of these contracts, so I don't attribute recent speculation to this event. The recent speculation seems more related to the prospects of war with Iran; however, when Morris says that speculation accounts for the price fluctuations, he's clearly right about that.

I agree that limiting access to the oil futures market is a mistake, and I have no problem with speculators. They're right to bid up the price of oil when the prospects of war with Iran seem so dire. I have a serious problem with the prospects of war. All of this talk about "speculation" is clearly camouflage for the guys generating all of the speculation, like all the cosponsors of the Congressional resolution advocating unprovoked acts of war (including a blockade) against Iran. They are responsible for the price movements, not the speculators.

By: PaulD

PaulD — Tue, 22 Jul 2008 10:16:19 +0000

Over the years I have had countless discussions with liberals regarding whether free markets prices adequately reflect the long-term. Their arguments have been along the lines that free markets reflect only short-term, immediate influences on prices.
I have always argued that this was bunk and pointed out that speculators make certain that current prices reflect long-term influences on prices. If they did not, speculators could make alot of money buying long-term options for a good.
Now it is odd to watch many people who once complained about the shortsightedness of markets are now complaining about the role of speculation in incorporating future events into the current price of oil.

By: Methinks

Methinks — Mon, 21 Jul 2008 22:50:35 +0000

Even better idea, Unit! Nobody in congress can wrap their forked tongues around that acronym. If they can't say it, they'll be too embarrassed to talk about it and maybe even leave it alone. Instead, they'll turn their attention back to figuring out if they're addressing Bernanke or "the other one".

You are a genius, possibly deserving of a Nobel prize (not the Peace Prize, one of the ones that's still meaningful).

By: Unit

Unit — Mon, 21 Jul 2008 22:31:02 +0000

Methinks,

well ok we could use an acronym then:

The MARIUFuQuSuDeWeBOSCIPEL index.

By: Methinks

Methinks — Mon, 21 Jul 2008 21:26:06 +0000

we should switch to "market in allocation of risk regarding the inherent uncertainty of future quantities of supply and demand of a well-known black oleaginous substance that is currently an important part of everyone's life".

By golly, Unit, I think you have something there! I can't imagine Barney Frank trying to slur his way through all that!

By: Unit

Unit — Mon, 21 Jul 2008 19:47:04 +0000

Maybe a name change would help: instead of "oil futures market"
we should switch to "market in allocation of risk regarding the inherent uncertainty of future quantities of supply and demand of a well-known black oleaginous substance that is currently an important part of everyone's life".

By: Mesa Econoguy

Mesa Econoguy — Mon, 21 Jul 2008 18:54:20 +0000

Just to clarify and take this one step further, 1) the futures market is a futures market – it is an estimate of future price, not instantaneous stock or flow (so no new oil flowing is a particularly asinine observation), 2) threats to crack down on so-called “speculators” will create an exodus from any market, as nearly anyone could be deemed a speculator, and a self-fulfilling price movement (see? Those evil speculators left, and the price went down), 3) truly dangerous and disingenuous people like George Soros know both of the above, and use it to their advantage, especially when they are invited to testify in front of Congress about evil speculators, which they are.

By: Acad Ronin

Acad Ronin — Mon, 21 Jul 2008 13:28:41 +0000

I am surprised that no one has made an analogy to property values. If I am in the process of trying to sell my house and the city announces a plan to take it in 10 years via eminent domain, I going to be very upset. The market value will drop immediately, even though nothing is happening now to the supply and demand for housing in my area.

By: Don Boudreaux

Don Boudreaux — Mon, 21 Jul 2008 13:25:00 +0000

Spencer,

I didn't say that the markets reacted to what Bush said; that was said by Dick Morris and Eileen Mc Gann. My point stands regardless of the source of information about higher-than-expected oil supplies.

By: Sam Grove

Sam Grove — Mon, 21 Jul 2008 13:20:41 +0000

He should try to answer the question of why they switched their bets to 'down'.

Why would they, if they could, want to drive the price down instead of up?

By: spencer

spencer — Mon, 21 Jul 2008 13:17:52 +0000

But if i you had actually watched the oil market you would know that the markets were reacting to the EIA data release showing that US oil inventories were much larger than expected, not anything that Bush said.

So as seems typical, you are drawing all kinds of conclusions because you think you know something you do not really know.

By: US Grant

US Grant — Mon, 21 Jul 2008 13:13:46 +0000

Dick Morris. You could have just written "ignorant" instead of "economically ignorant." Dick is to conservativism what Paul Krugman is to liberalism–that guy we all wish wasn't one of us.

By: Methinks

Methinks — Mon, 21 Jul 2008 12:28:23 +0000

In fact, the more speculators, the more liquid the market and the faster the price adjustment.

By: OregonGuy

OregonGuy — Mon, 21 Jul 2008 12:00:16 +0000

I think I got it:

http://tinyurl.com/6pbopn

If not, please let me know.