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The way I think about this is: You already are in "debt" by being alive. You have the huge liabilities of needing food and housing and maybe sometimes some hea
by galdosdi 2y ago
The way I think about this is:
You already are in "debt" by being alive. You have the huge liabilities of needing food and housing and maybe sometimes some healthcare, in order to stay alive.
By buying a perpetual source of one of those you aren't investing or expanding your liabilities-- just the opposite, you are hedging against and closing out your liability by prepaying for it. To take this idea further, this is why I think buying a little bit of stock in energy and agriculture companies is "risk free" because while they could go down if those things get cheaper, you would then win out as a consumer. You will need food and energy down the line anyway, so a modest investment in those closes out that hedge rather than expanding liability
- anon7725 2y agoThere are lots of ways that stock in food and energy companies could go down while prices go up. A drought or pipeline disruption come to mind.
- yowlingcat 2y agoAbsolutely. And I think the same is true for the commodities market correlates there; if memory serves correctly, crude commodity futures went negative for a break period during the supply chain volatility spike during the beginning of the pandemic.
- mlrtime 2y agoYou are correct, for oil contracts near expiration. All oil containers (in certain areas) were full, so anyone taking delivery would need a place to store the oil. The market needed a way to transfer this risk (risk of delivery) so prices went negative meaning you were paid to find a place for the oil. It's really neat actually and shows how almost all of the financial system is really a big "risk transfer" mechanism.