A Win-Win

Perfect!

Socialized profits and privatized risk.

I like it.

Best idea I have ever heard (as long as they are using their own money in their margin accounts)!

Good advice Don, but I'll bet you wouldn't like what Team Obama consider to be "their own resources". It presently sits in your pocket.

I agree with dg lesvic: "Perfect!"

When you start defending oil speculation and price manipulation as some part of natural markets you've really jumped the shark.

If you truly are for competition and market forces winning the day you can't be for speculators who game the market, corner the market and turn it into a casino.

"And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed."

The Great American Bubble Machine

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

Rolling Stone magazine

When you start defending oil speculation and price manipulation as some part of natural markets you've really jumped the shark.

Have you apologized for your lies, Mr. Strawman? Define price manipulation as opposed to .....?

$13 billion to $317 billion, an increase of 2,300 percent.

Obviously, this money came from somewhere, where did it come from? Did it come from the fact that money was withdrawn from something else, and there by depressing the price of those commodities, goods, or assets? or did this money come from the state's ( Fed's ) printing press?

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

Where is the proof? How many ex-banker's work in the St. Obama's administration?

Brilliant! Of course you know good Liberal Democrats don't risk their own money or use their own money to finance public projects or welfare subsidies...that's what other people's money is for.

You're awesome Don.

As a speculator in the oil markets, I give this 2 thumbs up. And to muiergo, look up the Hunt brothers, and anyone else who has tried to corner a speculative market since then. They lose.

As long as there is adequate risk, the "speculator" boogey men will either limit their "wild speculations" or fail. Unfortunately this government has done everything is can do to eliminate risk. If government agencies are insuring investments in any market (housing, corn, etc.) speculators will have no reason to act conservatively. Thus, greater swings in supply and demand. If the market was left alone and investors were held responsible for their actions, the market would be much more stable.

Don, you're forgetting that only Evil right-wingers invest in America companies and products. True Americans, the Americans Obama stands up for, invest in lobbyists and union reps.

"Rather than issue new regulations that might distort prices...."

These guys basically bilked each and everyone of you of $300 to $1000 last summer. There going for more now and you guys are shaking PomPoms in praise for them. Can you say Stockholm Syndrome?

"selling oil short when its price is rising adds supply to the market today"

Could somebody explain this?

"These guys basically bilked each and everyone of you of $300 to $1000 last summer. There going for more now and you guys are shaking PomPoms in praise for them. Can you say Stockholm Syndrome?"

Says the man who wants more and bigger government, which has bilked billions of people out of trillions of dollars, using actual violence. Can you say projection?

Another classic tongue in cheek, read between the lines letter, but for amusement purposes I must make a contrarian point here. If this site is supposedly an advocate of spontaneous order, then why should the owners of this site ever argue that any thoughts or actions of their intellectual adversaries are wrong, don't work, or are detrimental to society when in fact, THEY AREN"T if spontaneous order is believed to work.

The intellectual error committed here is that most arguments put forth are based upon servicing an ideal, or what is an abstract conception of what conditions are required for the generation of maximum societal wealth, rather than individual self interest--which is what spontaneous order is all about. For example, why shouldn't the Obama administration manipulate markets to further consolidate their power? According to spontaneous order, they should. Why would an argument that Obama shouldn't maximize his power make sense?

So in reading these threads, we get arguments that the administration is wrong about this and that, rather than the truth, which is that the administartion in power is trying to steal this and that. After all, exactly what is spontaneous order? It is about groups competing for power and how the settlement, unintended, results in some form of equity, or compromise.

So, if anyone is still with this line of reasoning, the administration and the Left, in general, is only doing what it is supposed to do--which is to steal from the productive sectors of the economy for the benefit of the unproductive sectors. It is foolish to editorialize how this hurts "society as a whole". Who the hell is he? It hurts productive people only, and if it eventually hurts the unproductive, it's to distant a prospect as well as an unexplainable one to them--since most unproductive people are also stupid.

In spontaneous order, envy also plays a positive roll contrary to popular wisdom. An ideal libertarian society, which this site tends to advocate, does not take into consideration the contribution of envy to spontaneous social order, and how it strenthens society. In theoretically free markets, wealth would accrue heavily to the most able people, and they would use that wealth to tilt the laws in their favor--thus destroying the free market. Envy plays the crucial roll in preventing the maximum consolidation of power from taking place. So, rather than this site considering envy as some sort of human defect, it should remain faithful to its premise of spontaneous order by trying to understand its actual roll in nature, and not castigating ther masses for allowing envy to influence their voting, etc.

To make this more clear, imagine a band of robbers succeeding in stealing a years worth of wealth from a village and getting away with it. The villagers have to work triple time to regain what they lost and the robbers can enjoy leisure activities for a full year. Now, imagine Ludwig Von Mises going to the robbers and explaining to them that had they not stolen their booty, the total wealth produced would have been greater and their share would have increased accordingly too. Unfortunately, it would not be a compelling enough argument to influence the robbers, and equally so, many of the arguments posted here are similarly weak. It'd would be better to clearly write about who is stealing from who and how they are doing it.

That was a very clever, and flip letter.

I loved it.

@mandeville - I like your thinking.

On a side note, I recently wrote a little program that takes any arbitrary graph, and displays it in a visually appealing way.

The program 'cooks' the graph in a completely non-deterministic way.

The cooking involves two simple competing, and complimentary tasks:

1) for every node in the graph, find all the other nodes that are connected to it with an edge, and move them half the distance closer (straight line, like gravity).

2) For every node in the graph, repel every other node, connected or not, by an amount that is inversely proportional to their distance (close nodes repel further). If the nodes are connected, repel only half as much.

When those 2 simple rules (attract and repel), are repeatedly applied to the graph, an aesthetically pleasing arrangement 'emerges'.

On complex graphs, it can take a while to converge, but watching it run is a trip.

For graphs that are trees, the program always converges on an arrangement that is fairly stable. If a graph has cycles in it (closed loop of edges), the program will sometimes create strange oscillations in the nodes, or it may even twist a ring into a figure 8, and endlessly march the nodes around the '8' like ants.

On really complex graphs, it sometimes has to make very intricate, and complex-looking moves - seemingly improbably moves to straighten out a mixed up graph.

In the end, it's an extremely inefficient, but fun way to lay out a graph.

Am I reading a contrarian comment here correctly: the demand for government [and its ability to steal, redistribute, and for its individual pols to gain] is, in fact, understandable because it was the result of spontaneous order in the (political) economy?

Hmm? The demand for firearms and the mood to revolt against the (theft) government is also part of the spontaneous order, is it not? What amazes me on this site is how many people with views contrary to those of the many on this site not only accept the theft but actually advocate for more of it.

What amazes me on this site is how many people with views contrary to those of the many on this site not only accept the theft but actually advocate for more of it.

The impression I get from muirgeo and his fellow anti-Capitalist statists is that they sees profit as theft, and the government rights that wrong through progressive taxation and wealth redistribution.

John -

RE: "The impression I get from muirgeo and his fellow anti-Capitalist statists is that they sees profit as theft, and the government rights that wrong through progressive taxation and wealth redistribution."

How is profit theft? How does that argument work? I'm not sure I've heard it.

Our benevolent dictator forgets that higher oil prices = reduced global warming.

If you don't like how the price of oil and gas fluctuates, then hedge it.

"selling oil short when its price is rising adds supply to the market today"

Could somebody explain this?

One sells oil short by selling a futures contract (a promise to deliver a certain amount of the commodity at a certain price on a certain date). Thus, selling a futures contract is a supply promise.

We can get into more detail if you want, but that's the basic gist.

Mr. Winston -

re: "If you don't like how the price of oil and gas fluctuates, then hedge it. "

I don't share the mania about regulating speculators or even any real concern about speculation at all... but I would counter this statement by pointing out that the issue people are concerned about isn't the impact of fluctuating prices on commomdity traders - they're concerned about the impact of fluctuating prices on consumers that don't hedge or by futures - they just buy the gas.

"selling oil short when its price is rising adds supply to the market today"

Could somebody explain this?

_____

Sure. If you sell oil at $60 today, theoretically some refinery or manufacturer purchased it from you at that price. They will refine the crude oil into gasoline, and eventually it will make its way to the pump. If you sell oil at $70, the refiner has to charge more and eventually that charge will show up at the pump. So if Obama comes in and starts selling right now, even though the price is rising (which it isn't) he is adding more supply to the market at the current price - before it rises.

Put more simply: if they come in selling it is an opposite force on the buying pressure, which will add supply and hold prices down.

How is profit theft? How does that argument work? I'm not sure I've heard it.

I think the argument goes something like - I work for the evil profiteer who earns money off my labor. I am paid a fraction of what I produce, and the evil profiteer pockets the difference. So that evil profiteer is stealing from the sweat of my brow, and it is the duty of the government to seize those ill gotten gains and distribute them fairly and equitably.

Mind you I'm neither putting forth this argument nor saying that it is what you believe, but I'm pretty sure muirgeo believes it.

That's the only way I can see to rationalize government theft as a good thing.

Two wrongs make a right (assuming profit is theft and thus wrong).

John, the individual you are responding to, if he's being honest with us, has seen this conceptual point being argued in the past. He may have even made the argument himself in another time and in another place.

I wonder if Muirgeo gets his medical information from "Rolling Stone."

don't work, or are detrimental to society when in fact, THEY AREN"T if spontaneous order is believed to work.

There is a distinction between spontaneous order and spontaneous chaos.

The impression I get from muirgeo and his fellow anti-Capitalist statists is that they sees profit as theft, and the government rights that wrong through progressive taxation and wealth redistribution.

Posted by: John

I am not the anti-capitalist here. You are the ones making excuses for profiteers who work by obsfucating price,demand and supply mechanisms. Allowing only insiders to know the real quantities and values.

Then you assume these are market prices and you blithfully purchase gas from the cheapest station asuming the market mechanism is in tack while in fatcs your paying surcharges and taxes to wealthy rip off artist and people on top. They control you to the point that you actually defend their theft from you. It's a good gig. I give thenm credit.

they're concerned about the impact of fluctuating prices on consumers that don't hedge or by futures - they just buy the gas.

If that were true, they would be encouraging more speculation. "They" are either disingenuous or stupid.

I wonder if Muirgeo gets his medical information from "Rolling Stone."

Judging by his spew here, he's getting it from "Hilights".

You are the ones making excuses for profiteers who work by obsfucating price,demand and supply mechanisms. Allowing only insiders to know the real quantities and values.

I thought an object's value was what someone was willing to pay for it.

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

I think that blew the village idiot's last remaining brain cell.

"Then you assume these are market prices and you blithfully (sic)purchase gas from the cheapest station asuming the market mechanism is in tack while in fatcs (sic) your paying surcharges and taxes to wealthy rip off artist and people on top ." Muirgeo

Is this the first time that Muirgeo recognizes that taxes are a rip-off?

muirgeo -

RE: "Then you assume these are market prices and you blithfully purchase gas from the cheapest station asuming the market mechanism is in tack while in fatcs your paying surcharges and taxes to wealthy rip off artist and people on top. They control you to the point that you actually defend their theft from you. It's a good gig. I give thenm credit."

Let's not make the old mistake of confusing "markets" with "competitive markets". There are real issues associated with markets that aren't completely "competitive"... but that doesn't automatically make them suspect.

Methinks -

RE: "If that were true, they would be encouraging more speculation. "They" are either disingenuous or stupid. "

I'm not so sure about that. I'm fine with speculation (I'm not sure about "encouraging" it, but I'm completely comfortable with it). That doesn't necessarily guarantee stability, though. Why should it???

RE: "I think that blew the village idiot's last remaining brain cell."

It's quite possible many have thought this about you in the past, but were gentlemanly enough not to voice the opinion.

That doesn't necessarily guarantee stability, though. Why should it???

Because it increases liquidity. Increased liquidity makes prices more stable than they otherwise would be. This is why the standard deviation of price in thinly traded securities is greater than in more liquid securities and why the price moves are sharper and deviations from fair value happen more frequently and are more pronounced.

It's quite possible many have thought this about you in the past, but were gentlemanly enough not to voice the opinion.

I care what you think about this because...?

Methinks -

I think you misunderstand me twice. First, I know why speculation CAN create stability. Why do you think I'm supportive of speculation, after all! I'm a bit fuzzy on why it GUARANTEES stability. If you buy the basic Minsky story speculation plays a big role in the origin of bubbles, which are the most violent and serious instances of instability. So yes, added liquidity acts in one direction but adding liquidity isn't all that speculation does, so I see no reason to believe speculation guarantees stability.

Your second (implicit) misunderstanding is that I might know why you might care about what I think about the basic deceny of not calling people village idiots. I don't.

Daniel,

As usual, you are deeply misunderstood on this site. Lots of things play a role in the creation of bubbles - notably, the inability or difficulty to short. Also, difficulty in assessing the future and illiquidity. Yes, a lack of liquidity does not quell speculation, it merely makes the price moves more vicious. The internet bubble was difficult to assess because nobody knew if we were looking at a technology that deserved a multiple similar to what we retrospectively know should have been assigned to computers and TVs in the early days or if the multiples should have been much lower. In other words, where we have fat tailed distributions, bubbles are more likely to form.

Speculation may play a role in bubbles, but the more speculators and the more unimpeded they are, the smaller the bubble is and the faster it pops. Note how quickly the oil price came down last year when it became clear that the fundamentals weren't there to support such a high price. Since the market is liquid you were able to sell out of your oil position at $145, 144,143,142, 141, etc. instead of selling a bit at $144 with the next bid at $135 and then at $125. That's the difference between a liquid market and an illiquid one and liquidity is dependent on the number of participants.

Danny, one more thing...when I need advice about behaviour from a boy half my age, you'll be the first to know. I know that in your 25 years you believe that you've become filled with what you think is great wisdom, but others may not always agree. Stick to the economics, dear.

>>As usual, you are deeply misunderstood on this site.<<

Not by all. I have what I feel to be a firm understanding of the guy.

"Lots of things play a role in the creation of bubbles - notably, the inability or difficulty to short."

A great point.

The broader issue is that regulation of the stock market is politicized. Politicians see their political fortunes tied in part to stock market performance, so fiscal, and even monetary, policy are incentivised to generate a ratcheting regulatory system (like impeding short selling) that will tend to inflate market prices.

And when market participants eventually recognize the phony value, the market dramatically corrects and the government adds more ratcheting mechanisms and...

Well, you know the drill.

I thought an object's value was what someone was willing to pay for it.

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

Posted by: JohnK

Yeah right... because the price and value of financial derivatives based on oil futures traded opaquely is obvious to all. That's why we fill our 401K's up with them.

As Nassim Taleb is on record stating these complex products exist for Ponzi scheme construction and stealing of wealth from the productive society.

Futures on oil ...sure. Derivatives on futures ... snake oil.

If you guys are OK with such schemes then I don't see why you have a problem with people using government thugs to get them their share of the pie... because with you all apparently everything is fair game.

Again... it goes back to my claim that based on your "principles" its unnatural to sperate out wealth and power grabs obtained by the anything goes rules of the market from wealth and power obtained using political menas... in fact the two are so intricately wound together there IS no separating them.

Vikingvista,

I completely agree. The market is more rigged now than I have ever seen it in my career. Insiders (market makers) are, of course, exempt from the restrictive rules because they are required to provide a two sided market at all times. Thus, the only thing regulation does is determine who can sell and when and thus, who wins and who loses. This has obvious price implications for price and volatility as fewer people can sell than can buy and is most pronounced in medium to low liquidity securities.

However, regulation doesn't always trend toward more restrictions. In the last three years, regulations that tilt the playing field toward insiders at the expense of customers have been removed. For instance, portfolio margin was introduced in early 2007 and allows 6 to 1 leverage as opposed to 2 to 1 Reg -T leverage for accounts over $100K. The price test for shorting was removed in July 2007, driving down spreads and improving liquidity and reducing volatility in low to medium liquidity stocks. Exchanges that didn't allow customers to post both a bid and an offer have closed (notably, the tragic AMEX). All of this improved the environment for non-market makers while squeezing market making profits through increased competition. Of course the regulatory trajectory changed when the bubble burst.

It's telling how many hedge funds and former customer firms have become broker dealers/market makers since the SEC has made it clear that rents will be created for insiders at the expense of customers.

Yeah right... because the price and value of financial derivatives based on oil futures traded opaquely is obvious to all

Well, looky here. It did blow out his last brain cell.

Futures ARE derivatives. Oil futures are heavily regulated, traded on exchanges, very liquid and extremely transparent.

Good to see that you come to your decisions based on not even the most slippery grasp of facts. You have earned the title "Village Idiot". Take a bow.

Nassim Taleb warns that the stimulus will kill the economy

If a label had to be given, which one would it be: this, this, or that? Combo, perhaps?

Funny, LCJ

LCJ, you are too funny.

S. Andrews, I had to stop reading after

"Messianic philosopher of the unknown,...". Nothing good could come from a reporter whose opening line is that stupid. I read Taleb years ago and I basically didn't disagree with him often. Until recently. This little hiccup has catapulted him to a status he does not deserve. He's not a great trader and he foresaw nothing. He bled his hedge fund dry, closed it, and then took enormous credit for the ho hum returns his protege scraped up last year buying teeny options. Many traders delivered high returns with low volatility in all kinds of markets for years. Last year alone, several equity options firms returned over 100% after years of 30% and 40% returns. Unlike Taleb, they won't take investment from the public and have no need to be publicity hogs, pushing their own central planning agenda. Taleb is dying to be just like his man-crush, George Soros.

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

Posted by: JohnK

Yeah right... - Yasafi

Note that in Yasafi's reply to the question posed by JohnK, there was not an answer to the question.

Again.

All traders are speculators, since nobody knows the future.

We should be thanking those whom BHO criticizes, since those are the guys working hard to get us a workable price, and they are doing so on their own dime.

For those who don't think this is a great value for our nation, we can see what happens when we leave price determinations to government geniuses--it was called the Soviet Union. It is gone now.