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I was immediately reminded of the same story. As far as I remember, speculators (who are important for a market, but should not dominate it) have been relative

I was immediately reminded of the same story. As far as I remember, speculators (who are important for a market, but should not dominate it) have been relatively recently allowed to dominate the market they speculate in. This led to them simply buying and buying, speculating on the rising prices the buying itself causes.

thaumaturgy 15y ago
Yes. IIRC, the critical change was that a major investment firm successfully lobbied regulators to allow them to give investors the option of indefinitely rolling over their commodities investments for a small fee. Investment firms are making a ton of money on the rollovers, and investors are simply purchasing commodities orders at whatever price they're available for and sitting on them until the market prices raise enough for them to feel like selling the orders. So, I could buy a pile of grain or a truckload of oil or what-have-you, not on the expectation that I'll be able to sell it for more money 6 months from now, but on the expectation that I can sit on it until I can sell it for more money. Basically, it gives me a place to stash money, that's guaranteed to pay me back at whatever rate I feel like demanding. The downside for everyone else is that this is creating artificial scarcities in markets across the board. There's a glut of oil in storage right now that isn't being refined into gasoline or other products just because investors somewhere are waiting for the price to go up before they let go of it. When you look at the peculiar way that so many commodities prices have risen so quickly in recent years, and at the way that other more traditional markets have been recovering more sluggishly than people are expecting, and at the way that the real estate market has been staying in gutter, this theory starts to make a lot of sense. There seems to be a lot of investment capital missing somewhere, and commodities seems to be inflated.

thaumaturgy 15y ago

Yes. IIRC, the critical change was that a major investment firm successfully lobbied regulators to allow them to give investors the option of indefinitely rolling over their commodities investments for a small fee. Investment firms are making a ton of money on the rollovers, and investors are simply purchasing commodities orders at whatever price they're available for and sitting on them until the market prices raise enough for them to feel like selling the orders. So, I could buy a pile of grain or a truckload of oil or what-have-you, not on the expectation that I'll be able to sell it for more money 6 months from now, but on the expectation that I can sit on it until I can sell it for more money. Basically, it gives me a place to stash money, that's guaranteed to pay me back at whatever rate I feel like demanding. The downside for everyone else is that this is creating artificial scarcities in markets across the board. There's a glut of oil in storage right now that isn't being refined into gasoline or other products just because investors somewhere are waiting for the price to go up before they let go of it. When you look at the peculiar way that so many commodities prices have risen so quickly in recent years, and at the way that other more traditional markets have been recovering more sluggishly than people are expecting, and at the way that the real estate market has been staying in gutter, this theory starts to make a lot of sense. There seems to be a lot of investment capital missing somewhere, and commodities seems to be inflated.