So why have I put up a chart of the oil price? That is because it is utterly baffling that those supposedly tasked with making rational decisions in speculative markets can be so utterly stupid that they actually appear to believe what Donald Trump says, as if it might either represent the truth or have any bearing on what might actually happen when there is not the slightest evidence that either might be the case.
If markets are meant to appraise available evidence, the fall in the oil price last week records their incompetence. They have one job to do, and they do it very badly. The fact is that they trade sentiment and not evidence. What is clear is that these markets, in which the world’s leading banks are major players, are a major disruptive influence. Far from revealing prices or providing mechanisms for trade, they appear to exist slowly for the purpose of permitting high-stakes gambling at enormous cost to society at large. The volume of trades to actual goods delivered is the clearest indication of that.
What can be done about this? My suggestion is that we need a variation on a financial transaction tax, called Spahn taxation, to deal with this situation. This does, first of all, require that a financial transaction tax at a low rate be charged as a matter of course on all trades in markets such as these, and that an additional tax rate be charged as market volatility, indicated by significant price variations, increases. That would be designed to tax speculation heavily and would provide an incentive for everyone to take a step back, examine the evidence, stop short-term speculative thinking, appreciate what is really going on, and trade only when necessary.
Markets disagree with Spud. But Spud is right, obviously. Therefore markets need to be screwed, by Spud.
“can be so utterly stupid that they actually appear to believe what Donald Trump says”
They *DON’T* believe what Trump says. THAT’S what the price reflects. Fear and uncertainty.
Was it one of the denizens here who mentioned the Iraqi price cap on oil under Saddam which meant anyone who could accumulate enough petrol in Jerry cans took it over the Kuwait border to seek it at higher cost? What’s he’s proposing makes sense given his totalitarian bent. Any crisis is an excuse to ratchet up state control.
Which was only really possible if you were favored by the regime. Or were able to bribe people without getting robbed.
Both in getting more petrol and in being able to cross the border.
What’s the point in having a blind eye if you’re not being paid for it.
A good chunk of Venezuela’s so cheap it’s hardly worth metering gasoline went over the borders in just this way.
Venezuela provides so many example of the folly of Murphy’s policies.
Thanks to price controls on what you were allowed to sell bread for, no one could afford to make it for sale as the raw ingredients cost more than the finished product. So if they wanted to buy bread it was practical to buy it over the border with some of the cash they got from selling that gasoline.
appreciate what is really going on
Queue Marvin Gaye:
Father, father
We don’t need to escalate
You see, war is not the answer
For only love can conquer hate
You know we’ve got to find a way
To bring some loving here today, oh (Oh)
I posit what’s really going on is commie dick Murphy hates freedom. Speculation is an exercise in freedom. Even though it appears his concern is they are going to choose wrongly, his real problem is that they are allowed to choose at all.
Commie Dick Murphy must really love Nixon, who had a long-running affair with price controls. (The Horseshoe Paradox: extreme left and extreme right are closer to each other than to the center.)
Cue.
Make him wait.
If the market participants were as “utterly stupid” as Murphy suggests they wouldn’t have made out like bandits from the price volatility.
The argument against markets has always been that people are buying or doing stuff that I don’t think they should. We need to control this and fortunately we have “experts” who can do so if only given a chance.
It’s deeper, TD. It’s not that they are choosing differently, it’s that they are allowed to choose.
There’s a parallel with freedom of speech. The commies fight free speech with claims of falsehoods or misinformation (whatever that is). But it’s a trick to get people to accept restrictions. It’s not the CONTENT that drives them, it’s that you are allowed to speak at all.
The problem is people project their decency on communists. We cannot understand their abnormal psychology.
Those utterly stupid people normally get their jobs by being top of their class or very close to it at a prestigious college or university. (Islington Tech narrowly missed the playoffs.)
Our Tim has written several excellent and succinct pieces on the role played by speculators, one of the most important of which is rapid feeding of information into prices. Which is the definition of a perfect market. Yes it is a zero-sum game, but the people who actually get the commodity delivered to their doorsteps have already signed their contracts many months ago. They sit back and watch the short term traders, like you and I might watch kittens playing with a ball of string.
Yes, Michael.
The actual producers, refiners and sellers of the product use the futures markets as hedging / insurance.
They generally lose on the deal, and are happy enough to do so, because certainty is preferable for their sales pipeline.
This gives speculators a nearly guaranteed loser on the other side of the deal.
But the margins are pretty thin in normal times.
Off topic, I read this at the Construction Physics substack:
British building standards apparently recommend that windows be sized so that they’re cleanable from the inside by “95% of the elderly female population, without the need for stretching;” if this (non-binding, but often followed in practice) recommendation is followed, the result is extremely tiny windows.
This is so stupid.
Windows on the continong open inwards, easy to clean but might drip or knock over a lamp. Casement windows in England open outwards, harder to clean but get rained on more.
Who TF thought making a law about this when if you want to change your windows you have a choice of dozens of options?
The good news is Spud now has an opportunity and will make a fortune trading oil futures, buy a yacht and sod off to the bahamas and so stop writing drivel.
Or lose his shirt the same way.
Probably the second, which is maybe why he isn’t doing it.