Posted on 07/13/2009 1:31:38 PM PDT by FromLori
The word “distortion” implies there is some “correct” price that actors in the market have moved away from. What is the correct price at any point in time? You can’t tell me. Only a market, open to anyone who wants to participate can find the price.
Don’t get me wrong. I’m not saying the prices aren’t too high. OPEC and commies like Chaves are artificially messing with the foreign supply and idiots in our government are holding down domestic production, collaborating to keep the prices higher than they would be in a free market.
Hedge vs. speculation - BIG difference.
Like you said, Southwest is hedging.
That’s not speculating - Southwest genuinely intends to buy, and use, fuel in the future (unlike speculators); hedging is a type of price protection. That’s what the futures market was designed for.
Why don’t you teach us, professor?
Well, this will have to make the price of oil more erratic.
Of course. The current criminals in Washington count on the fact that the vast majority of the sheeple are economically illiterate and can be swayed by shell games like “free” healthcare, controlling “speculation”, “stimulating” the economy with pork and the like. Most people out there can’t even tell you how to make change for a dollar, let alone tell you how markets like these are supposed to function. We are so screwed!
To say you want hedgers and not speculators is like saying you only want folks who want to buy stocks and not folks who want to sell them. Speculating is often just taking the other side of the trade that the hedgers take. What’s more is that even though you may say that SWA is “hedging” they are actually speculating too. And in effect, by not hedging, that too is a speculation.
To say “Hedging”=good, “Speculating”=bad is a gross oversimplification and not in keeping with how the futures markets were originally designed to operate.
If you buy a house to live in it are you hedging? If you buy a condo to rent it out are you speculating?
The bottom line is that it shoudn’t matter. What matters is that you don’t corner the market, or have insufficient capital, or front run client trades or things of that nature.
How wide would the spreads be? How deep would the markets be?
The market works just fine without speculators, probably even better than with them around to distort prices.
Spoken like someone with no experience in markets.
It was the speculators who drove up the price of oil last summer to obscene levels
Because speculators only buy and never sell? Because their buys make the price rise while their sells leave the price unchanged?
They're trying.
That’s not speculating - Southwest genuinely intends to buy, and use, fuel in the future
Southwest does not take delivery of the oil contracts they buy.
(unlike speculators); hedging is a type of price protection. That’s what the futures market was designed for.
So if I, like Southwest, want to protect myself against more expensive fuel in the future and buy an oil contract, I'm an evil speculator?
If you genuinely plan to take delivery of the contract, you’re hedging.
Speculators do not take delivery. They’re not at all interested in the contract’s actual physical contents.
And like I said, Southwest does not take delivery of the oil contracts they buy.
Turning a blind eye to the markets works great, except when the bad guys are trying to screw you with it...sure worked out great for us when Lehman tanked and sparked the October surprise...on Bush's watch.
So it's okay for them? What about me? Can I buy an oil contract because I'll use gasoline?
Sure.
You can also go thru all the trouble of refining it too, and disposing of the leftovers.
You never answered my questions about spreads and depth of markets.
You’re missing my point - Southwest Airlines actually needs oil. It uses oil. It employs oil in a productive pursuit, namely as jet fuel. I’m talking about some trust fund daytrading douchebag who is simply speculating, and the only oil he knows is what he puts in his hair. We don’t gain anything by these fools interfering in this kind of commerce - they add nothing. They do not restore equilibrium prices, they exacerbate the imbalances. They don’t want stability, they want instability, because it’s when you’re off of equilibrium that you make the big profits. The bigger the differential, the bigger the profit. They have an interest in gaming the system, in disseminating misinformation, in creating panics, shortages, and gluts. Why? So they can be rich for the sake of being rich? That period of business is over. It’s time to get back to the basics - provide a service or product for a profit. Let’s be real businessmen, not pushers of vapor and phantoms.
They do not use oil. They do not take delivery of the oil they buy futures on. They buy oil futures "all in the name of lining their pockets".
I’m talking about some trust fund daytrading douchebag who is simply speculating
You mean buying low and selling high? Selling high and buying low?
The bigger the differential, the bigger the profit.
Speculators always profit?
They have an interest in gaming the system, in disseminating misinformation, in creating panics, shortages, and gluts.
We didn't have any of those before futures were traded on oil.
It’s time to get back to the basics - provide a service or product for a profit.
Those pesky people using their freedom to buy and sell.....in America! The nerve.
Here is how it is not the real market - if you and I can bet on the price of oil and have nothing at risk we can both make money if the price goes up or down. As a matter of fact if you and I work together to move the price up or down, but we never have to take delivery of the oil or gasoline, we are in business can work together cause prices to rise (change) and never be a part of the market. It is even better if what we put at risk is 0. Having an account is not the same as having trucks and stores, which is the market. Future speculators have a chance to be in the market differently than the people who buy 1000 shares of GE or WalMart - they are betting with other peoples money.
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