Speculation in commodity markets
Sunday, June 22nd, 2008The commodity markets have taken centre-stage in the media today, not just because of their record breaking prices, but also because of the US Congress threatening to put position limits in these markets. The Congress is convinced that it is the wretched speculators who are driving up commodity prices and the CFTC is being pressured to take various measures against them.
There have been several testimonies in front of the Congress, including the famous George Soros claiming that while he is no expert on oil, he is an expert on bubbles and he does indeed think that the oil market resembles the bubble of which led to the stock market crash of 1987. The latest to join the list is Lieberman, a prominent lawmaker, who proposes to ban large institutional investors from participating in the commodity markets. While going through all these testimonies and reading the one-sided blames, I stumbled across a very interesting (and almost,, shall I say, refreshing) take on this debate. It’s actually a counter-argument that seems to spell out the common fallacies that surround the market. Titled ‘Headlights through the fog’, this article highlights the importance of good quality analysis and the impact this can have on policies; and more importantly warns us that misguided information can have serious implications for the financial market as a whole. I definitely recommend a read….