Speculators are necessary

[novaman]

When the economy is driven by supply and demand it is somewhat stable but when it is driven by speculation, it is highly unstable.

I am far from an expert on trading and that sort of stuff but this statement is very accurate in my opinion. Supply and demand change gradually over time. There may be some shocks to the system but I don't believe it is anything earth shattering. Speculators on the other hand can and have driven huge scares that made a huge mess not only in the domestic markets but internationally. My best example would be wheat back in late 2006 into early 2007. There was this huge scare that wheat stocks were running razor thin worldwide and the price of wheat shot up over $20 per bushel. Within days the price tanked as fast as the trading rules allowed only to fall back to around $5 later that same year. Now I can't pin it ALL on speculators but I am willing to bet a large portion of that price surge was directly tied to speculators. It created a huge over supply as that year there were record acreages of wheat planted. Who knows how far that has resonated since then. There may have been more corn planted and less wheat and things would have stayed relatively smooth over the past years. I understand that there are instances where speculators may help the market but more often than not I believe they only serve to create greater volatility.

 

[upfrombottom]

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.

Jo, when I think about speculators, the subject of fuel prices just sticks in my mind, because I sell fuel. This very thing nearly busted me and it did alot of businesses. Most people don't realise how it can, so I try and explain. I had an inventory of fuel, not at capacity, but I would say 3/4's anyway. There is very little profit in fuel, most only make 6 to 8 cents a gallon, at the whole sale level and the retail level.

Speculation drove the price up ten cents overnight, not demand, our economy doesn't jump ten percent overnight. Anyway, even though I raised my prices, the same thing happened again just a few days later.
When I ordered my next load of fuel the price had risen another ten cents. I had sold 20,000 gallons of fuel in one week and had made a profit of about $2500.00. Sounds good, but I had to replace that fuel at thirty cents a gallon more that my last load so it cost me $6000.00 more to replace it. The same thing happened again on that load and the next and the next. In one month I had spent $14,000.00 over and above profits just trying to maintain inventories on one item. The same thing happened again the next month. Then as quickly as the price went up it started falling. I recouped some of the money, but still wound up losing a great deal in the end. Where did that money go? In a speculators pocket, so I have a great deal of animosity toward speculators.

My supplier at the time was not able to withstand his losses and had to file bankruptcy. As did alot of businesses. Try and make bank notes when you have no profit for several months in a row and all your reserves are tied up in inventories that are worth less than you have in them.

 

[dun]

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.

Jo, when I think about speculators, the subject of fuel prices just sticks in my mind, because I sell fuel. This very thing nearly busted me and it did alot of businesses. Most people don't realise how it can, so I try and explain. I had an inventory of fuel, not at capacity, but I would say 3/4's anyway. There is very little profit in fuel, most only make 6 to 8 cents a gallon, at the whole sale level and the retail level.

Speculation drove the price up ten cents overnight, not demand, our economy doesn't jump ten percent overnight. Anyway, even though I raised my prices, the same thing happened again just a few days later.
When I ordered my next load of fuel the price had risen another ten cents. I had sold 20,000 gallons of fuel in one week and had made a profit of about $2500.00. Sounds good, but I had to replace that fuel at thirty cents a gallon more that my last load so it cost me $6000.00 more to replace it. The same thing happened again on that load and the next and the next. In one month I had spent $14,000.00 over and above profits just trying to maintain inventories on one item. The same thing happened again the next month. Then as quickly as the price went up it started falling. I recouped some of the money, but still wound up losing a great deal in the end. Where did that money go? In a speculators pocket, so I have a great deal of animosity toward speculators.

My supplier at the time was not able to withstand his losses and had to file bankruptcy. As did alot of businesses. Try and make bank notes when you have no profit for several months in a row and all your reserves are tied up in inventories that are worth less than you have in them.

Do the oil companys still do the buck loan deal. I swear that's where they used to make 90% of their profit.

 

[bannedagain]

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)

These speculators you talk about here. CME does not allow anyone to have an account in the negative without margin calls. These guys gotta pay the debt or account closed. I'm not understanding how paper traders could have left cotton growers and the government on the hook. Thats not how futures trading works.

 

[dun]

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)

These speculators you talk about here. CME does not allow anyone to have an account in the negative without margin calls. These guys gotta pay the debt or account closed. I'm not understanding how paper traders could have left cotton growers and the government on the hook. Thats not how futures trading works.

Doesn;t anyone remember Billie Sol Estes?

 

[bannedagain]

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.

Jo, when I think about speculators, the subject of fuel prices just sticks in my mind, because I sell fuel. This very thing nearly busted me and it did alot of businesses. Most people don't realise how it can, so I try and explain. I had an inventory of fuel, not at capacity, but I would say 3/4's anyway. There is very little profit in fuel, most only make 6 to 8 cents a gallon, at the whole sale level and the retail level.

Speculation drove the price up ten cents overnight, not demand, our economy doesn't jump ten percent overnight. Anyway, even though I raised my prices, the same thing happened again just a few days later.
When I ordered my next load of fuel the price had risen another ten cents. I had sold 20,000 gallons of fuel in one week and had made a profit of about $2500.00. Sounds good, but I had to replace that fuel at thirty cents a gallon more that my last load so it cost me $6000.00 more to replace it. The same thing happened again on that load and the next and the next. In one month I had spent $14,000.00 over and above profits just trying to maintain inventories on one item. The same thing happened again the next month. Then as quickly as the price went up it started falling. I recouped some of the money, but still wound up losing a great deal in the end. Where did that money go? In a speculators pocket, so I have a great deal of animosity toward speculators.

My supplier at the time was not able to withstand his losses and had to file bankruptcy. As did alot of businesses. Try and make bank notes when you have no profit for several months in a row and all your reserves are tied up in inventories that are worth less than you have in them.

Why did you not charge $.30 a gallon more for your fuel, same as you paid to the supplier? The speculators move the market you follow it.

 

[bannedagain]

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)

These speculators you talk about here. CME does not allow anyone to have an account in the negative without margin calls. These guys gotta pay the debt or account closed. I'm not understanding how paper traders could have left cotton growers and the government on the hook. Thats not how futures trading works.

Doesn;t anyone remember Billie Sol Estes?

And where does CME come into that crooked mess?

 

[Jalopy]

I really appreciate everyones insight. This has a great deal of impact on our commodities whether we like it or not.
Everytime the market gets hot and goes higher we as producers have an oppurtunity to take some of that profit out by hedging or forward contracting and letting the speculators carry the risk.
As an example when corn jumped to $7/bu in July/August of 2007 the futures jumped also. And in January of 2009 I know of a couple of producers that were delivering corn on forward contracts at $6.10/bu when the local cash price was $3.35. The speculators may have caused the jump but producers took the money to the bank. I know the local coop that bought the grain had that grain protected with future contracts. So who if not the speculators "donated " this money to the equation?

 

[dun]

Doesn;t anyone remember Billie Sol Estes?

And where does CME come into that crooked mess?

Just that there will always be some wheeler dealer that will figure out a way to do something crooked no matter what safegaurds are in place.

 

[dun]

I really appreciate everyones insight. This has a great deal of impact on our commodities whether we like it or not.
Everytime the market gets hot and goes higher we as producers have an oppurtunity to take some of that profit out by hedging or forward contracting and letting the speculators carry the risk.
As an example when corn jumped to $7/bu in July/August of 2007 the futures jumped also. And in January of 2009 I know of a couple of producers that were delivering corn on forward contracts at $6.10/bu when the local cash price was $3.35. The speculators may have caused the jump but producers took the money to the bank. I know the local coop that bought the grain had that grain protected with future contracts. So who if not the speculators "donated " this money to the equation?

Last year on our retained calves we made more on the protection then we made from the calves.

 

[bannedagain]

Doesn;t anyone remember Billie Sol Estes?

And where does CME come into that crooked mess?

Just that there will always be some wheeler dealer that will figure out a way to do something crooked no matter what safegaurds are in place.

With CME you play by their rules or you don't play.

 

[john250]

Deep pockets usually win in commodity speculation.
I don't have the gut to trade the commodities, but I would not consider trading unless I could be on the floor at CBOT or CME. The saddest words around that world are "opened down the limit". It means you want to sell, but there are no buyers. Before you can get out of your position you lose 2-3 $/bu on a 5000 bu contract. The traders on the floor liquidate their own losing positions before they liquidate the positions of average joes or so I have heard.
I think the markets are necessary, if flawed. They are pretty good at price discovery.
It takes speculators to make a market, unless you can take your product direct to a consumer. Studies have shown that the CBOT and CME have an incredibly small percentage of winners among those who are strictly speculators-not hedgers.
My notion has always been that if I had money to speculate, in Vegas friendly women will serve me free drinks while I lose the money. In Chicago, they'll take my money and charge me a commission for the service.
Hedging is a different deal.

 

[bannedagain]

Deep pockets usually win in commodity speculation.
I don't have the gut to trade the commodities, but I would not consider trading unless I could be on the floor at CBOT or CME. The saddest words around that world are "opened down the limit". It means you want to sell, but there are no buyers. Before you can get out of your position you lose 2-3 $/bu on a 5000 bu contract. The traders on the floor liquidate their own losing positions before they liquidate the positions of average joes or so I have heard.
I think the markets are necessary, if flawed. They are pretty good at price discovery.
It takes speculators to make a market, unless you can take your product direct to a consumer. Studies have shown that the CBOT and CME have an incredibly small percentage of winners among those who are strictly speculators-not hedgers.
My notion has always been that if I had money to speculate, in Vegas friendly women will serve me free drinks while I lose the money. In Chicago, they'll take my money and charge me a commission for the service.
Hedging is a different deal.

Usually it will come off limit trading for a long enough period to get out before you would lose $3 a bushel.

 

[upfrombottom]

Why did you not charge $.30 a gallon more for your fuel, same as you paid to the supplier? The speculators move the market you follow it.

You, just like most, don't understand. Say I bought 1000 gal at the beginning of the month and paid $1 a gal. for it. I sold 100 gal a day for the first 4 days and made $.08 a gal. The price goes up $.10 so I go up the same. For the next three days I sell a 100 gal each day and make a profit of $.18 a gal. The price goes up again $.10 so I go up again . For the next three days I sell a 100 gal each day and make a profit of $.28 a gal. So in nine days I made a total profit 32+54+84= 170. So for that last load I took in $1170. I order another 1000 gal. and the price is $1.30. so that 1000 gal. is going to cost me $1300. so to pay for it I have to come up with $130 out of my pocket to replace the fuel. Keep in mind that the increases are not because demand has gone up, meaning the volume of business has not increased. If it had my profit for the same time period would have had increased because the volume had increased.

This same scenario goes on for four weeks strait. All of a sudden, in one months time, I have 1000 gal. of fuel that cost me $1900., so I had to come up with $520.00 out of reserves. Do this for several months and you'll have all the reserves you had saved up, invested in something you haven't gotten any income out of. The price has then gotten to the point that demand starts to fall because people can't afford to purchase it. Then the price falls. In one day it drops $.10, and the 1000 gal that I've got $1900.00 invested into is now only worth $1800.00 and sales have dropped to 80 gal. a day. On this day I just sold 80 gal., so I just took in $150 for something that cost me $152. I just lost $2 and all the profit for that day. It keeps declining, so at the end of two months I have 1000 gal. of fuel that is worth $1000 and have lost all profits and $600 of my reserves. This is a small example so try and multiply it by volumes and actual prices and its very easy to see where this can bankrupt a small company.

 

[bannedagain]

upfrombottom

It really isn't as hard as you make it out to be. You are buying a product and selling the identical product. It ain't rocket science you charge more than you pay. If their price goes up, you go up if it goes down your price goes down. Surely you are not trying to tell me it goes down faster than it goes up? I've never witnessed that at any gas station or truck stop. If you were buying three seperate products and combining them into one product and selling it maybe then I could find sympathy for you but you aren't. So you lost $2 one day, remember the day you made $18 and the day you made $28 on those days on the way up? You portraying a bad example of how speculators hurt a business. Don't they forward contract gas there? I know it gets done everyday.

 

[upfrombottom]

upfrombottom

It really isn't as hard as you make it out to be. You are buying a product and selling the identical product. It ain't rocket science you charge more than you pay. If their price goes up, you go up if it goes down your price goes down. Surely you are not trying to tell me it goes down faster than it goes up? I've never witnessed that at any gas station or truck stop. If you were buying three seperate products and combining them into one product and selling it maybe then I could find sympathy for you but you aren't. So you lost $2 one day, remember the day you made $14.40 and the day you made $22.40 on those days on the way up? You portraying a bad example of how speculators hurt a business. Don't they forward contract gas there? I know it gets done everyday.

As I stated before, most people don't understand, especially the simple minded ones.

 

[bannedagain]

upfrombottom

It really isn't as hard as you make it out to be. You are buying a product and selling the identical product. It ain't rocket science you charge more than you pay. If their price goes up, you go up if it goes down your price goes down. Surely you are not trying to tell me it goes down faster than it goes up? I've never witnessed that at any gas station or truck stop. If you were buying three seperate products and combining them into one product and selling it maybe then I could find sympathy for you but you aren't. So you lost $2 one day, remember the day you made $14.40 and the day you made $22.40 on those days on the way up? You portraying a bad example of how speculators hurt a business. Don't they forward contract gas there? I know it gets done everyday.

As I stated before, most people don't understand, especially the simple minded ones.

Yep your right you will never understand

 

[Ryder]

Remember the price of gasoline some two years ago compared to now? It's the fault of those evil speculators driving the price down. Wouldn't it have been great if they had held it up for these past months? Looks like it is on the way backup. That'll show them.

Seriously, People complain about the speculators throwing prices out of line. Sometimes yes, in the short run. But overall the speculator makes for an orderly market and takes a lot of risk. Otherwise the markets would be chaos.
Markets cycle up and down. They go up often too much to overbought. Then they cycle back down to oversold. Up and down always seeking equilibrium. That is the nature of markets.
I guess an alternative would be government controls (think communism).

Are there dishonest people inolved in speculation? Yes. Are you trying to say that all cattle people are honest? All people in the feed businesss, automobile dealers, tractor and implement dealers, etc. etc. etc.?

 

[backhoeboogie]

This is a small example so try and multiply it by volumes and actual prices and its very easy to see where this can bankrupt a small company.

It was happening left and right back in the day. Maw and Paw groceries were buying stock and selling it for way under the cost of replacing it. I was stocking in such a small grocery. The owner (Paw) told me to add 15 cents to everything above the suggested retail. I did. A month later that still wasn't enough. Can you tell how this also leads to inflation? The lady there (Maw) started ordering less stock but had to keep a closer watch on what merchandise was needed or sold.

Large stores that can hedge the wholesale prices and move a lot of volume are not as susceptible. For the small folks, a bag of sugar setting on your shelf for a month is doing nothing but losing money. Multiply that by hundreds of items on the shelves.

 

[TexasBred]

A store that has a bag of sugar or anythng else sitting on the shelf that long should have shut down long ago. Inventory management is something everyone needs to learn and use. The big boys have learned it and the small ones better too if they plan on staying above water. Wouldn't hurt to learn to calculate weighted averages too and never replace anything that has to be discounted to move. Haven't seen anybody here that let's inefficient cattle hang around so same applies to ratailers. You don't have to match the price of the big boys. Just price your stuff to where it's not worth their time and money to drive to the big boys place for the small savings. A good example is a convenience store/bakery located about 60 miles from me. Had 18 million in sales last year....over 5 million in NET profit. It can be done.