On May 31, 2008, at 1:42 PM, raghu wrote:
On Sat, May 31, 2008 at 9:01 AM, Shane Mage <[EMAIL PROTECTED]>
wrote:
Only from someone just "selling cacao beans short." Both trades
will have
to be unwound within the speculators' short time horizon. One
side, in a
very volatile market, will make big profits, the other side will
suffer
somewhat bigger losses, the difference going to intermediaries.
But whether
the price soars or plummets, it can only stay there if the supply
or demand
side fundamentals justify it. It is "fundamentals" that speculators
speculate about, to the extent that they aren't merely speculating
about
other speculators' speculative intentions.
I sent this link to PEN-L earlier: some people are arguing very
persuasively that a new breed of speculator (pension funds) is
responsible for the commodities bubble...
...This money is trying to enter
a new asset class and is therefore long-only and is completely
price-insensitive. As long as more dumb money keeps pouring into these
asset classes, the bubble will continue...
...If supply is adequate - as has been shown by others who have
testified
before this committee2 - and prices are still rising, then demand must
be increasing. But how do you explain a continuing increase in demand
when commodity prices have doubled or tripled in the last 5 years?...
Five years during which the US Fed has been flooding the world with
electronic dollars.
Higher money incomes move quantity demanded *at every price* above the
level
of a noninflated global demand function. Hedge-fund managers, like
the rest of the economically illiterate, cannot grasp the difference
between "demand" (in the sense of quantity actually sold) from
"demand" (in the sense of the function relating quantity sold to price
at every price level).
Shane Mage
"Thunderbolt steers all things...it consents and does not consent to
be called Zeus."
Herakleitos of Ephesos
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