Mr. Chakrabortty: this idiot writes on economics for The Guardian

Other banks such as Barclays got in on the act, but commodity funds remained a pretty small business – until the turn of the millennium, when two things happened. First, the US Congress rushed through a piece of legislation that permitted pension funds and others to invest in these new commodity indices.

No. The CFMA confirmed pre-existing law.

What has happened over the past decade is that hundreds of billions of new money have been staked on food prices going one way: up.

It isn\’t fucking possible to do this in a futures or derivatives market! They are zero sum games, for everyone who goes long there must be an equal and opposite short contract.

It is only in the physical markets that the weight of money argument can hold. If someone buys wheat and stores it then yes, they can push up that physical price.

So, what we want to know is, did, as the physical price rose, stocks rise as well? Ah, no, you see they didn\’t. Physical stocks fell. So there was no hoarding, there was no price rise being created by speculation.

Twat.

8 comments on “Mr. Chakrabortty: this idiot writes on economics for The Guardian

  1. It’s not a good piece, I left a comment pointing out two obvious mistakes.

    But I think it’s fair to say hundreds of billions of dollars have been staked on prices going up – the speculative/investment community are definitely long the markets (there’s a reasonable short element, and it comes and goes, but I’d estimate about 20% of the long position).

    It’s not of course the whole story, and it’s not fair to say is that this money has pushed prices up, or will turn out to be correct in its assumption.

    On stocks they did rise in some commodities, and – perhaps more importantly – the rate of production has fallen below historical trends, which might reflect ‘speculation’ by producers.

    What I find utterly bizarre is the view that speculation is the main or a key culprit of higher oil prices often goes hand-in-hand with believing in “peak oil”.

  2. Lots of things at work here, and osme of the new ETFs do hold both futures and the underlying commodity, which could drive up prices. Buying futures can also drive up underlying prices in certain (rare) situations.

    However.

    The most likely causes of prices increases aren’t specualtion at all. I’d hazard a guess at;

    1. Growing populaitons
    2. Growing GDP/head and thus desire for premium foods
    3. QE/devaluation of fiat currencies.

    If anything, higher food prices should in theory at least incentivise *more* food production, which in turn would lower its prices….

  3. Am I missing something, but “It isn’t fucking possible to do this in a futures or derivatives market!” seems a bit of an overstament. As if the futures price goes out of whack, the arbitrageurs move in and sell forward in the futures mkt at silly high price, buy now at nice low price and hang on to the physical stuff in the meantime. Pulling prices up for the physical stuff today. Until there is no profit through such a strategy once cost of carry and storage are taken into account.
    But yes, the guy is still a twat, and I guess that falling stocks indicate that it was more speculation driven. I think.

  4. Charlie – that’s true, but the point is that stocks didn’t rise. Now that is the entire crux of the matter really, and as stocks are very rarely measured accurately in any commodity its difficult. In oil, where stocks are measured relatively easily for obvious reasons, the consensus view is stocks were quite low. The problem there is that oil producers (unlike farmers) can stockpile oil in the ground by not producing, which might have been incentivised by rising prices.

    The stocks issue I think is best explained like this, by the way. If you don’t think speculation has increased or decreased production, and you don’t think it increased stocks, then by definition consumption must be unchanged too. And it is difficult to explain why it will have changed consumption patterns. Therefore it can’t have had a price impact.

Leave a Reply

Name and email are required. Your email address will not be published.