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I get that Goldman Sachs et al are making crazy money whether prices go up or down, but investors in their funds only make money if prices go up, right? They lo

by mooism2 16y ago

I get that Goldman Sachs et al are making crazy money whether prices go up or down, but investors in their funds only make money if prices go up, right? They lose money if prices go down, don't they? So if commodity prices go down in the long run, why does anyone invest in a commodity fund long term?

ComputerGuru 16y ago
That's where it gets crazy/wrong - since Goldman is "buying" regardless of whether prices go up or down, it has the effect of artificially providing feedback that triggers higher prices regardless of anything else. So even if the investors lose a little in day-to-day trading, in the long-run, they're gaining because contrary to what logic says, the prices aren't going down in the long run, they're actually going up (at least until the bubble explodes). Basically, if we all agree to continue buying something at whatever price it's at regardless of whether we're losing or not, in the long run, we'll drive the prices higher and our own (as investors) profits with them. And then the bubble bursts... only to start over again.
- mooism2 16y ago
  Yes, prices go up until the bubble pops, at which point fund investors (but not Goldman) lose lots of money. Was the low point post-bubble above pre-bubble prices?
  - mooism2 16y ago
    I'm sorry, was that a stupid question? Perhaps you could have told me why after you downvoted.
    - ComputerGuru 16y ago
      Wasn't me that downvoted you, mate. But anyway, that's a difficult question to answer and the response could go either way - it all depends on when you officially define the bubble to have started/ended.
- simonh 16y ago
  >That's where it gets crazy/wrong - since Goldman >is "buying" regardless of whether prices go up or down,... That's not how futures markets work though. If someone else said, you can only go long in a contract if someone else goes short. You can put in a BUY order, but until it matches someone else's SELL it just sits there in the market. This is because futures don't work like stocks or shares, or even actually buying a commodity now and sitting on it. This is why some banks rent supertankers full of oil - they can't achieve the same hoarding effect on a futures exchange.
Lennie 16y ago
What pisses me off the most about the article is that Goldman Sachs seems to have such a large influence on the regulatory body. They had a subsidiary company sent a letter to the commission asking for exceptions to the rules. The head person at the commission was someone who actually worked for Goldman Sachs before and after (maybe even during) working at the commission. And they approved this. When someone inquired about these exceptions they eventually says: ‘We have to clear it with Goldman Sachs.'

by mooism2 16y ago

ComputerGuru 16y ago

That's where it gets crazy/wrong - since Goldman is "buying" regardless of whether prices go up or down, it has the effect of artificially providing feedback that triggers higher prices regardless of anything else. So even if the investors lose a little in day-to-day trading, in the long-run, they're gaining because contrary to what logic says, the prices aren't going down in the long run, they're actually going up (at least until the bubble explodes). Basically, if we all agree to continue buying something at whatever price it's at regardless of whether we're losing or not, in the long run, we'll drive the prices higher and our own (as investors) profits with them. And then the bubble bursts... only to start over again.

mooism2 16y ago
Yes, prices go up until the bubble pops, at which point fund investors (but not Goldman) lose lots of money. Was the low point post-bubble above pre-bubble prices?
- mooism2 16y ago
  I'm sorry, was that a stupid question? Perhaps you could have told me why after you downvoted.
  - ComputerGuru 16y ago
    Wasn't me that downvoted you, mate. But anyway, that's a difficult question to answer and the response could go either way - it all depends on when you officially define the bubble to have started/ended.
simonh 16y ago
>That's where it gets crazy/wrong - since Goldman >is "buying" regardless of whether prices go up or down,... That's not how futures markets work though. If someone else said, you can only go long in a contract if someone else goes short. You can put in a BUY order, but until it matches someone else's SELL it just sits there in the market. This is because futures don't work like stocks or shares, or even actually buying a commodity now and sitting on it. This is why some banks rent supertankers full of oil - they can't achieve the same hoarding effect on a futures exchange.

Lennie 16y ago

What pisses me off the most about the article is that Goldman Sachs seems to have such a large influence on the regulatory body. They had a subsidiary company sent a letter to the commission asking for exceptions to the rules. The head person at the commission was someone who actually worked for Goldman Sachs before and after (maybe even during) working at the commission. And they approved this. When someone inquired about these exceptions they eventually says: ‘We have to clear it with Goldman Sachs.'