Redstate

Posted at 9:49am on Jul. 10, 2008 Airline Industry CEOs Hoping You’re As Ignorant About Economics As Everyone Thinks You Are

Um, Guys? Speculators Aren’t Your Problem

By blackhedd

I’m going to avoid linking to this because you can find it yourself, and because I don’t know who the original authoritative source is. But you’ve certainly heard that a dozen CEOs of major US airlines, including all the big names, have put out a letter urging you, their customer, to agitate for more regulation of the commodities-futures markets.

Unfortunately time is too short to fully consider the issues raised in this carefully-written letter. The basic idea is something you’ve heard me discuss several times now: speculation in crude-oil futures and derivatives is raising the price.

That’s true enough, as I’ve said before. It’s also true that the airline industry is under as much pressure from high oil prices as anyone else (more on that in a moment).

What’s not true is that speculative pressure (or more precisely, buying pressure originating ultimately from institutional investors) is a permanent support for the price of oil. Thus, the conclusions reached by the airline CEOs are wrong, but they’re wrong in ways you wouldn’t expect from experienced business people.

Read on…

Posted in Airlines | CEOs | Economy | Oil Prices | regulation | speculation — Comments (19)/ Email this page » / Read More »

Posted at 12:51am on Jun. 25, 2008 Speculating About Speculators

By Pejman Yousefzadeh

There has been a lot of talk concerning the influence of speculative activity on the price of oil. All of the sudden, we are hearing that "speculators" are responsible for oil prices going up and for the fact that we have to pay more at the pump. Of course, this all fits in with the need of certain portions of the political class to find a narrative that identifies and excoriates certain human villains for the increase in the price of oil--thus making us feel better about having found and excoriated those villains and causing us to believe that if only we punish the villains, we will be able to solve the problem of high oil prices at the same time, or at least be well on the way towards solving the problem of high oil prices.

Well, it just ain't so. Read the whole thing, but here's the key passage:

. . . there's nothing about futures or options that makes it any more attractive to bet that commodity prices will go up than to bet they'll go down. Guess wrong on the direction, and you lose money.

And that's basically all you need to know about speculation. When you speculate on the price of a commodity, what you are doing is betting on whether that price will rise or whether it will fall. Not whether you wish it would rise or fall. Not whether you hope it would rise or fall. And your money will do nothing to cause the price of oil to rise or fall. It will do so based on--wait for it!--the laws of supply and demand.

Right now, we don't have that much in terms of supply. We have huge demand--especially from the Chinese and the Indians. We have precious little refining capacity as well. This raises the price of oil and causes us to pay more at the pump. Speculators understand this and that is why they are currently betting that the price of oil will go up. But their bets don't cause the price of oil to go up and if any speculator bet on oil prices to go up during the 1980s--back when oil prices were actually crashing through the floor--that speculator would have lost his or her shirt.

It's amazing how much you begin to understand about economics when you realize that economic forces are significantly beyond the control of human beings to influence and that they are significantly more under the influence of the laws of supply and demand. Once that knowledge becomes widespread, we won't waste our time blaming people like speculators for the fluctuations in the price of oil.

Posted in Economic Ignorance | Economy | Oil Prices | speculation — Comments (26)/ Email this page » / Read More »

Posted at 8:09am on Jun. 23, 2008 The Audacity of Lies: Obama Takes on the Crude-oil Speculators

The Mouth Is Quicker Than the eye

By blackhedd

When you’re Barack Obama, you can pursue an Orwellian rhetorical style because you have several crucial factors in your favor: You’re young. You’re good-looking. You have a pleasant deep voice. And you can blunt any criticism, no matter how cogent, just by saying “You’re only beating up on me because I’m black.”

Now that Obama has thrown campaign-finance reform under the bus (it doesn’t suit his newly-affluent circumstances), he has to deal with the price of gasoline. He’s come out with a rather esoteric set of regulatory proposals to deal with the issue, which has remarkably become perhaps the most important one of the summer.

I’ll take you through a short explanation of what our Hero thinks he wants to do, but as you’ll see, his bottom line is rather different from what you might think it is.

Keep reading…

Posted in CFTC | Crude Oil | Economy | futures markets | Obama | speculation — Comments (42)/ Email this page » / Read More »

Posted at 12:42pm on Jun. 12, 2008 Earth to McCain: Crude Oil Speculation Department

There’s more to this than you can investigate

By blackhedd

Senator McCain is quoted as having said in a television interview that speculators have contributed to the recent high prices for crude oil.

McCain acknowledges that he can’t judge how big the effect of speculation is. Very few people actually know the answer to the question, and they’re not talking. McCain also believes there should be a thorough investigation.

Ok, fine, let’s convene a blue-ribbon panel and buy them some expensive lunches and air travel so they can produce a report three years from now that no one will read and contains no action items anyway.

Until then, let me fill you in a bit.

Keep reading…

Posted in CFTC | Crude Oil | Economy | futures markets | McCain | speculation — Comments (18)/ Email this page » / Read More »