4 Myths About Speculators
July 27th 2008 22:13
Jeffrey Carter has written a very good defense of ion and destroyed 4 myths about speculators in Want Cheaper Oil? Support Speculation, Don’t Curtail It
Myth: Speculators are bad for markets. - Speculation is the grease, called liquidity, which makes the market engine function.
Myth: No one is watching speculators - The markets are regulated and overseen by the CFTC (as opposed to OTC derivatives which are not regulated and are not standardized.)
Myth: Speculators don’t take “delivery” of a commodity so they only want the price to go higher. - Since commodities have been traded, few speculators ever take delivery. A small majority of contracts are delivered, but all participants want the threat of delivery so the futures price replicates the underlying commodity.
Myth: Speculators are making prices in oil higher for consumers. - High prices in the oil market have nothing to do with speculation. Demand for oil is “inelastic.” It's suppy constrictions that have caused prices to be exagerated.
If Congress would open up drilling instead of going home for four weeks, we could begin to increase supply, even then it will take years and in the meantime U.S. and world growth will increase demand for energy of all kinds.
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