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Thursday, August 18, 2005

Eff'n All

If anyone (including BushCo) thinks that corn ethanol will save us in the bottom of the 9th inning, they need to first expend a few brain cells in digesting the logic of this post at Pharyngula. Not that we have a game-clock or 9-inning rule to judge the winners and losers, we simply have to assume that a practical solution obeys its own time table.

Until that time, lots of money will get spent on subsidies (ethanol) and on (as Newberry points out) pure speculation:
The sell off the most recent speculative peak has happened. Oil prices could well drop by 15 to 20 percent, before mounting their next chage.

Oil prices rises have, as most speculative moves are, been a series of sharp spikes upward. What is important is that nothing has changed that will prevent the next spike from going higher still. This is because the speculators, most of them, are making very solid profits each time through selling to those in a supply pinch. There will be another one, and another one after that.

We have recently struggled through this already in regards to the tight speculative silver market.

And notice how the silver speculators proudly fly their flag. They admit as much to pumping the price.
Every bull market claws two steps higher before retreating one step back so corrections are totally normal and should be expected. It is futile to fight them.

Every correction and subsequent recovery lines the pockets of the investor class, likely never used in funding enhanced R&D or in educating the consumer, who keeps falling for this scheme over and over. As Big Gav said in the comments:
Anybody with a passing familiarity with the system would understand that long term futures prices are simply a function of the present - arbitrageurs guarantee it (and will keep taking money off those who aren't willing to understand how the system works forever).

End of case.


Professor Anonymous Anonymous said...

"we" "know" the "game is rigged" - be the game the use of the FRN, the stock market, the metals market, blackjack, 3 card monte, rolette, oil, or powerball.

The question becomes which rigged game are you going to play? Which rigged game is less rigged against you?

Most of the 'games' want to keep score with the FRN. If you play a game that the rules (tax law as the manifistation of political policy) makes a foodstuff really cheap, then it looks like a great idea to convert food into ethanol. If you play a different game where a metal is in demand for industry, than a different choice is in order.

But if there is no industry and no need for the metal, at least with ethyl you can get drunk and forget how nice things used to be.

Now, anyone know of a nice fair game that isn't rigged "we" can start to play?

10:18 PM  
Professor Blogger Big Gav said...

Without attempting to defend the system I might note I wasn't trying to say that it is rigged - just that there are certain rules governing futures (and other derivatives) that mean that they should behave a certain way.

In this case it is the fact that you can do "arbitrage" trades that will make a guaranteed profit if futures prices drift from the value of the present subtracting the carrying costs over the period of time up to the futures contract expiry.

In this case, people are free to bet on rising oil prices and the market will guarantee good odds for them because of this. However, if the market as a whole is convinced prices will be higher in future this same logic means that this will quickly be reflected in the currnt price...

Futures markets (given sufficient depth) can actually be quite "fair" compared to the stock market for example...

3:46 AM  

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