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You are kindly ignoring speculation. What you presented is an efficient market hypothesis, however markets are not efficient. They invite speculation bubbles an

by karol 6y ago

You are kindly ignoring speculation. What you presented is an efficient market hypothesis, however markets are not efficient. They invite speculation bubbles and they do crash.

chii 6y ago
The market crashing over speculation is not going to harm the consumers of said commodity. Speculation is a tool to smooth out the price for the people who _don't_ want the risk, and offload it to those who _do_ want the risk!
- kace91 6y ago
  Honest question, from an economically ignorant perspective: If people hold houses to speculate with the price of real state, that makes the price I pay for the necessity of a place to live way more expensive than it would be otherwise (this is something I empirically know to be true). Why doesn't the same logic apply to water once it's possible to speculate with it?
  - mikaeluman 6y ago
    To your example. During the US housing price bubble (so called) that deflated 08; it was generally much cheaper to rent. So a user did not necessarily have to buy a house. And when you purchase real estate far beyond what is needed, then obviously you will have to rent because you can't occupy it all by yourself. The true price of living hasn't changed just because people are overvaluing real estate. Consider water. Say a speculator drives the price way up in the sky to the extent that ordinary people are affected. What will said speculator do with these contracts? Either she will sell them (and the price rebounds), or she will be stuck with tons of water which is burdensome and incurs costs to store. So clearly she will want to sell this water and at that point be subject to the market demand for it. In other words, undue speculation drives you out of business. Now, regarding this future contract it is financially settled based on the actual index value of what water costs. So it's not capable of being driven by silly speculation at all.
  - gruez 6y ago
    >If people hold houses to speculate with the price of real state ...isn't that one of the problems with housing? It already allows for speculation, and in addition to that, it's heavily biased towards people speculating in one direction: up. People can be leveraged up to 20x (aka. 5% down payment), whereas for stocks it's limited to 2x[1]. There's also no meaningful way to short housing prices. You can't short-sell a house, and there aren't derivatives for housing (futures/options). The latter would also help increase supply because speculators can speculate on housing without tying up the underlying asset (ie. stories of speculators buying houses and leaving them vacant because they don't want to deal with the hassle/risk of tenants). [1] https://www.sec.gov/reportspubs/investor-publications/investorpubsmarginhtm.html https://www.sec.gov/reportspubs/investor-publications/invest...
eru 6y ago
I invite you to spot bubbles and pop them very profitably via short selling. (Spoiler: there are no bubbles as they are commonly understood.)
mikaeluman 6y ago
No I did not. I merely pointed out that markets cannot change reality. They give you a view of reality. Regarding this contract, it is financially settled. So there is no actual delivery of water, and it merely offers you an exposure to already existing prices of water in California.
- Krasnol 6y ago
  If some machines trade stupidly high amounts of money because of some bullshit on twitter, what is the reality argument worth? Meanwhile the reality of the average person on this planet doesn't have anything to do with the reasons for the largest trades on "the markets". So are those trades irrelevant for your general opinion or those people? "The market" has become a sick abomination of capitalism. Trades are being made by people or machines which have nothing to do with the actual products. Absurdly complex products made even the trading process some sick meta-thing. And you say this is reality? This is the reality the market CREATES not the reality it is supposed to reflect.

by karol 6y ago

You are kindly ignoring speculation. What you presented is an efficient market hypothesis, however markets are not efficient. They invite speculation bubbles and they do crash.

chii 6y ago

The market crashing over speculation is not going to harm the consumers of said commodity. Speculation is a tool to smooth out the price for the people who _don't_ want the risk, and offload it to those who _do_ want the risk!

kace91 6y ago
Honest question, from an economically ignorant perspective: If people hold houses to speculate with the price of real state, that makes the price I pay for the necessity of a place to live way more expensive than it would be otherwise (this is something I empirically know to be true). Why doesn't the same logic apply to water once it's possible to speculate with it?
- mikaeluman 6y ago
  To your example. During the US housing price bubble (so called) that deflated 08; it was generally much cheaper to rent. So a user did not necessarily have to buy a house. And when you purchase real estate far beyond what is needed, then obviously you will have to rent because you can't occupy it all by yourself. The true price of living hasn't changed just because people are overvaluing real estate. Consider water. Say a speculator drives the price way up in the sky to the extent that ordinary people are affected. What will said speculator do with these contracts? Either she will sell them (and the price rebounds), or she will be stuck with tons of water which is burdensome and incurs costs to store. So clearly she will want to sell this water and at that point be subject to the market demand for it. In other words, undue speculation drives you out of business. Now, regarding this future contract it is financially settled based on the actual index value of what water costs. So it's not capable of being driven by silly speculation at all.
- gruez 6y ago
  >If people hold houses to speculate with the price of real state ...isn't that one of the problems with housing? It already allows for speculation, and in addition to that, it's heavily biased towards people speculating in one direction: up. People can be leveraged up to 20x (aka. 5% down payment), whereas for stocks it's limited to 2x[1]. There's also no meaningful way to short housing prices. You can't short-sell a house, and there aren't derivatives for housing (futures/options). The latter would also help increase supply because speculators can speculate on housing without tying up the underlying asset (ie. stories of speculators buying houses and leaving them vacant because they don't want to deal with the hassle/risk of tenants). [1] https://www.sec.gov/reportspubs/investor-publications/investorpubsmarginhtm.html https://www.sec.gov/reportspubs/investor-publications/invest...

eru 6y ago

I invite you to spot bubbles and pop them very profitably via short selling. (Spoiler: there are no bubbles as they are commonly understood.)

mikaeluman 6y ago

No I did not. I merely pointed out that markets cannot change reality. They give you a view of reality. Regarding this contract, it is financially settled. So there is no actual delivery of water, and it merely offers you an exposure to already existing prices of water in California.

Krasnol 6y ago
If some machines trade stupidly high amounts of money because of some bullshit on twitter, what is the reality argument worth? Meanwhile the reality of the average person on this planet doesn't have anything to do with the reasons for the largest trades on "the markets". So are those trades irrelevant for your general opinion or those people? "The market" has become a sick abomination of capitalism. Trades are being made by people or machines which have nothing to do with the actual products. Absurdly complex products made even the trading process some sick meta-thing. And you say this is reality? This is the reality the market CREATES not the reality it is supposed to reflect.