Speculators are necessary

[Jalopy]

Even in fear of reprisals I stand by the statement that speculators are necessary. I too am guilty of bashing speculators from time to time because it looks like they are making money the easy way without involving labor.(it works in reverse also, they can lose money) However if we did not have speculators involved in marketing commodities it would just be the offerings of the buyers and sellers only and one side would corner and control any commodity for a period of time.
An example to illustrate this would be if I were to offer a 1200# calf for sale and the only one interested were beef packers and they were full for orders then they could take the animal at any price they want as there would not be a set market. However with speculators involved they set a minimum price so that the packers would have to meet that price or not get any future purchases.
This is a very simplistic example but it holds true if it is for beef incarlot quntities of grain or precious metals. Speculators are a necessary component of the market.
Any comments anyone?

 

[kenny thomas]

I am going to think about this for a while before I comment a lot, but on a different end what if the packers need a lot of cattle and the spectulators have them bought at a lower price and they under bid what the producer would have got on an open market? I do not like the idea of people owning something on paper without ever seeing it or having any plans of ever taking delivery of it. To me they are just trading paper.

Good topic though, maybe I can learn something.

 

[Jalopy]

Commodities by definition are time sensitive, I take that to mean that there is an experation date. Meaning there is a date that the commodity is prime and beyond that date it deteriorates in value by nature.
If a producer would have a potload of cattle ready for delivery the first of January but all the packers are full when the producer wants to set a delivery date then there would not be a market. So a speculator steps up and says that he will pay a minimum price for the cattle and the producer agrees to that so he can get rid of his cattle in a timely fashion and do other things with the money, whether it is to buy replacements or pay anote that is due or anything else. That speculator is using his/her best judgement that they will get their money back and some return for taking the risk that the price could move either way while they own the cattle. Even if they do not physically have possesion of the cattle any price movement may work to enhance or decrease the value of their holdings.
Meanwhile the packers realize that they have an unrealized need for the cattle so they end up buying the cattle from the speculator but what they agree to buy from the speculator may be less or more than what the speculator paid for the cattle.
All of this works on an agreement basis the producer , speculator and the end purchaser all have agreed to the terms. They have all used their best judgement on what gives them the best oppurtunity and agreed that what they are undertaking is best for them at the time.
A lot of time we look at what we did via hindsight and wish we could have done something different but if yopu are looking forward as in a forward contract our eyesight is not always 20/20.

This is a discussion topic and I look forward to more insight. JLP

 

[Jogeephus]

However if we did not have speculators involved in marketing commodities it would just be the offerings of the buyers and sellers only and one side would corner and control any commodity for a period of time.

You mean like Enron did to the state of California? Buying up all the power and selling it to them with strong arm techniques which caused rolling blackouts but millions of dollars in bonuses to the people manning the phones at Enron? Why not just put a gun to someone's head and ask for money for nothing. This is probably the best example I can see for why it should not be allowed. Look at the cotton market. Think it was year before before last speculators ran the price out the roof. Many farmers around here locked into these high prices but the speculators got hung with the high cotton cause there was no market for it. What did they do? The speculator filed bakcruptcy and got another desk and a notebook and started up business again. Who got hurt? Farmer and then the taxpayer making the difference up to the farmer for the price difference. (and for those of you who say this can't happen cause they are bonded and such look at what just happened with the central livestock bunch or whoever that was. They were bonded too. This did happen, it will happen and it will continue to happen as long as we allow these theives to play without any risk)

 

[upfrombottom]

However if we did not have speculators involved in marketing commodities it would just be the offerings of the buyers and sellers only and one side would corner and control any commodity for a period of time.

This did happen, it will happen and it will continue to happen as long as we allow these theives to play without any risk)

Speculators should not be allowed to hide behind corporate status. This would even the playing field considerably.

 

[Jalopy]

If a person owns a commodity and it is not priced are they not speculators? So if I own my fed cattle and hold them for a better time to auction them or sell to a packer aren't I speculatng on a better market. But if I forward price then I am a seller. If the end purchaser does not want to buy more cattle for my delivery date then again I am speculating that before my delivery date the end purchaser will step up and buy my offering. But if a third party would step in between and buy my offering and hold the risk until such time as I can deliver then shouldn't that person be allowed an oppurtunity to get paid for taking the risk on buying my product? If that third person gets paid more for owning the rights to my product for a set period of time then so what I was the one that sold the risk to him. If however the commodity goes against him and he loses his position or money then that is also his reward for buying the risk and his only recourse should be the money from his purchase should be gone.

I realize that there are examples that everyone can quote of malfeasance of the workings of the commodity markets but if you consider those as opposed to the millions of contracts handled each year they are slim. JMHO

 

[Jogeephus]

but if you consider those as opposed to the millions of contracts handled each year they are slim. JMHO

How much is this costing the taxpayer in commodity adjustments? You won't here this figure but I'm afraid its more than it is worth to justify letting someone like this influence the market. Like you say, there are millions of contracts done each year. Only the big things have made its way to the news but I can't help but wonder if we wouldn't all be better without them.

 

[upfrombottom]

Should paper be considered tangible goods, i.e. can it it be appraised, used for collateral, bought and sold? It happens every day. Speculators are allowed to make contracts for future delivery, and use those contracts as collateral for loans, that they in turn use to make more contracts. Most are a pyramid scheme where someone always loses, but it is never the guy that starts it.

 

[ANAZAZI]

Fire is a good servant but a terrible master.
Same with speculators; on a certain scale they do help to smooth the economy, but as Jo says, it did not work well in california.

 

[TexasBred]

Even in fear of reprisals I stand by the statement that speculators are necessary. I too am guilty of bashing speculators from time to time because it looks like they are making money the easy way without involving labor.(it works in reverse also, they can lose money) However if we did not have speculators involved in marketing commodities it would just be the offerings of the buyers and sellers only and one side would corner and control any commodity for a period of time.
An example to illustrate this would be if I were to offer a 1200# calf for sale and the only one interested were beef packers and they were full for orders then they could take the animal at any price they want as there would not be a set market. However with speculators involved they set a minimum price so that the packers would have to meet that price or not get any future purchases.
This is a very simplistic example but it holds true if it is for beef incarlot quntities of grain or precious metals. Speculators are a necessary component of the market.
Any comments anyone?

Just like that old Kenny Rogers song...gotta know when to hold'em , know when to fold'em...miss it and you've lost your a$$

 

[Jogeephus]

Just like that old Kenny Rogers song...gotta know when to hold'em , know when to fold'em...miss it and you've lost your a$$

This is true for the small idividual speculator but the Bernie Maddoff's and the Harvard graduates have figured ways around this by first building corporate shields. When they get too smart for their own good and the gamble goes south they lose a shell company and a piece of paper. Only thing that really hurts them is the time it takes to get a new name and business started. This is so unlike a fella I know that had the apple market figured out. His brillance led to the delivery of a whole box car load of apples to his town and yes he paid a high price for them. I guess this is what it means by having to eat a bad investment and as long as someone might have to actually eat or take possession of the commodity they are monkeying with I have no problem with it. Take away this risk and you take away restraint. JMO

 

[Jalopy]

I guess my next question would be how much of a commodity would a buyer or seller have to control to actually corner a market now? In the late sixties the soybean market was cornered and controled by having only 10% of the market controlled by one family.
So if you have numerous producers but only 10 end purchasers of a commodity and no one else was allowed to buy that commodity because speculation was not allowed, how long would you feel it would be before there would be collusion among the end purchasers to set a price?

 

[TexasBred]

Just like that old Kenny Rogers song...gotta know when to hold'em , know when to fold'em...miss it and you've lost your a$$

This is true for the small idividual speculator but the Bernie Maddoff's and the Harvard graduates have figured ways around this by first building corporate shields. When they get too smart for their own good and the gamble goes south they lose a shell company and a piece of paper. Only thing that really hurts them is the time it takes to get a new name and business started. This is so unlike a fella I know that had the apple market figured out. His brillance led to the delivery of a whole box car load of apples to his town and yes he paid a high price for them. I guess this is what it means by having to eat a bad investment and as long as someone might have to actually eat or take possession of the commodity they are monkeying with I have no problem with it. Take away this risk and you take away restraint. JMO

He did not have to take delivery tho...he could have just sold at market and accepted his loss without taking delivery. Maybe his stupidity make him "smart" in the end. A boxcar of apples would be a mess.

 

[backhoeboogie]

Corn prices had the market upside down two and a half years ago. 3 and 4 weights were bring 30% less per pound than 8 and 9 weights. I brought home a few trailers loads of 3 and 4 weights, backgrounded them, and put them on pasture with my herd. It was pure speculation - and a stroke of luck.

Some of them turned out excellent and have been calving. Others were turned back to the market.

If someone has something for sell and someone else wants to pay the asking price or market price, I don't see an issue personally.

 

[Jogeephus]

I guess my next question would be how much of a commodity would a buyer or seller have to control to actually corner a market now? In the late sixties the soybean market was cornered and controlled by having only 10% of the market controlled by one family.
So if you have numerous producers but only 10 end purchasers of a commodity and no one else was allowed to buy that commodity because speculation was not allowed, how long would you feel it would be before there would be collusion among the end purchasers to set a price?

You pose a good question but let me first say I'm not against speculation if one actually takes risk and assumes physical control over the commodity. This is capitalism and I'm all for it.

To answer your question I think it would be a train wreck in the short term but in the long term I think it could be good. Take corn for example. Assuming someone cornered the market on this and they sold the corn at exorbitant prices to the manufacturers the general public would be outraged at the retail price and begin to look for alternatives. This in turn would create opportunities for the producers as they would begin manufacturing corn products locally just like they did 40 years ago and to some small extent today. This would then create jobs and opportunities for others on the local level which I think would be good. Smaller producers cannot compete with large corporations. Large corporations - like corporate speculators - are backed by mountains of investor money and do not have to do things the same way as someone who is risking their life's savings. I know this firsthand as I used to work for the largest corporation of its kind in the nation and answered only to the president. When we went public we had mountains of free cash that we could use to buy out or put our competition out of business. If we had a particular market in our sights, you best sell us your company or else we would undercut you into bankruptcy and buy the dead carcass of your business for no other reason than to be sure it was a dead business. This was wonderful for us and we grew into a multi-national corporation cause - I guess - screwing americans just wasn't good enough for us. Besides, it made our quarterly reports look wonderful so we got more free money and our retirement accounts swelled tenfold. (Its ironic that value is so heavily measured by appearance.) This made a few people filthy rich, but at what cost? How many people's dreams and livelihoods did this practice destroy? All in the name of good business. It took me some time to see what we were actually doing and I'm sure simply speaking of it breaks the agreement I had to sign with them and the SEC. But I don't really give a $hit. Besides, I didn't mention their name but I assure you I've touched your pocket book more than once. Thanks, I guess. Actually, I'm sorry. And is the reason I left in spite of being offered triple my salary to stay and haven't looked back till this thread.

 

[dun]

Vultures and flys may be necessary, but you don;t have to like them

 

[Jogeephus]

Yes but they don't need to feed on the living. ;-)

If everyone in business would remember this saying I think the world would be a better place.

"Pigs get fat and hogs get slaughtered".

In our present system we need to insure that the speculators can be slaughtered instead of doing a razzle dazzle with some paperwork.

 

[bannedagain]

However if we did not have speculators involved in marketing commodities it would just be the offerings of the buyers and sellers only and one side would corner and control any commodity for a period of time.

You mean like Enron did to the state of California? Buying up all the power and selling it to them with strong arm techniques which caused rolling blackouts but millions of dollars in bonuses to the people manning the phones at Enron? Why not just put a gun to someone's head and ask for money for nothing. This is probably the best example I can see for why it should not be allowed. Look at the cotton market. Think it was year before before last speculators ran the price out the roof. Many farmers around here locked into these high prices but the speculators got hung with the high cotton cause there was no market for it. What did they do? The speculator filed bakcruptcy and got another desk and a notebook and started up business again. Who got hurt? Farmer and then the taxpayer making the difference up to the farmer for the price difference. (and for those of you who say this can't happen cause they are bonded and such look at what just happened with the central livestock bunch or whoever that was. They were bonded too. This did happen, it will happen and it will continue to happen as long as we allow these theives to play without any risk)

Jo

I can't ever remember the CME filing bankruptcy. I would like to read more about this. Could you tell me more about this.

 

[Jogeephus]

Don't know anything about them. Just look at the list of speculators who drove our fuel prices out the roof a few years ago and then look at the list of corporations receiving bailout money and I think my point is clear.

 

[upfrombottom]

Speculators can and do, bankrupt more small business in the US than most realize. When the economy is driven by supply and demand it is somewhat stable but when it is driven by speculation, it is highly unstable. The backbone of our economy is and has always been small business. Put them out and you have what is going on in this country, right now.