Wednesday, May 11, 2011

Prices work


This chart shows the news that has sent the commodity markets into another tailspin. According to the DoE, total stocks of crude oil (excluding the Strategic Petroleum Reserve) have surged this year, and recent increases have been much more than the market was expecting. Prices work. The high and rising prices of crude oil and gasoline have apparently conspired to increase supplies while also reducing demand, thus boosting inventories. In retrospect, it seems that prices were too high, so now they have to fall some. This is how markets balance supply and demand.

7 comments:

Benjamin said...

With the exception of the loony-tunes gold and silver markets, all commodities speculators are going to learn this lesson.

This reality of prices also destroys the "commodities are bringing on inflation" argument.

Commodities cannot keep inflating. Indeed, they often bust.

TradingStrategyLetter - Weekly Summary said...

The lesson 'investors' will learn is that don't trust the 'unregulated', opaque, random, and political regulatory margin authorities. The five fold increase of margin in ONE week stinks to high heaven. Why don't 'they do the same thing in 'their bond, currency, or S&P markets? This is ALL about crushing the inflation canary in the coal mine to reinflate horrific debt levels and further devalue a once strong and proud currency!

Benjamin said...

Trading-

You mean speculators were driving the market?

TradingStrategyLetter - Weekly Summary said...

Speculators drive nothing. Only 'real demand' will drive markets.

Not even the FED can continue to keep interest rates at zero while devaluing the currency for the long term.

Just wait until that 'ticking time bomb' blows up! I'm guessing it will be after the NEXT election tho!

Currently the 'regulators' are too busy investigating B Madoff who made $50b disappear - as opposed to themselves who made $10 trillion of credit disappear!

Benjamin said...

Trading-

If speculators drive nothing, why did increasing margin calls result in commodity price reversals?

And, since M2 is increasing at about the same 6 percent annual arte as it ever did, how do we get to serious inflation?

Benjamin said...

BTW the Dow Jones-UBS Commodity Index℠ is now at the same level it was in late 2005.

The story on "commodities inflation" may not be so one-dimensional.

TradingStrategyLetter - Weekly Summary said...

Have a peek at www.debtclock.org and then tell me it's all about the evil silver speculators.