You are conveniently leaving out the fact that these contracts expire every couple of months whether your long term bet is right or wrong.  This promotes manipulation:

 

"http://www.cato.org/pubs/regulation/regv17n4/reg17n4c.html"

Some short term and some can be longer term. Remember that the further into the future your predictions are the less reliable they become. Therefore the tend to be traded in months or weeks. That does not limit futures trading's usefulness IMV.

Check Six

 

Rocky

When educated about the futures market, a wise man once said "Oh, y'all are bookies!"

 

Same game, higher brow gangsters.

Futures markets do work well for real market participants when hedging  or trying to offset imbalances in consumption or excesses in production. The whole thing gets screwed up when wall street banks, soveriegn wealth funds, and other speculators come in with their black box technology and supercomputers and start buying like mad men and daytrading with the instruments driving prices up 100 % in a year with no appreciable change in supply or demand. Oil is a very inelastic commodity and demand and supply doe not change to the point to justify 8 to 10 dollar price movements in single trading periods.

 

Maybe higher interest rates will cause the global pool of money to start buying US bonds again and quit screwing with the price of oil.

Oil is a very inelastic commodity<Xylene

Another great example happened this week. When the Saudi's were rumored to be adding 800,000 barrels of oil per day to world stocks this week, the price dropped $10/barrel. When the actual number turned out to be 200,000 it bounced back up. A very logical set of trading moves given the current supply picture.

 

This demonstrated oil's elasticity of price in action.

 

Check Six

 

Rocky

Saying to a libertarian that the market can be manipulated is like selling a prime steak to a committed vegetarian.

 

 

 

 

Check Six

 

Rocky

 

Rocky,  your saying that the markets cannot be manipulated by speculators is completely nullified by the fact that Enron traders did speculate on the California energy market and were convicted by a jury trial for said actions.

I never said that people, Gov'ts in particular, don't try to manipulate the market. They have an effect upon it to the extent that they participate. That point is not particularly relevent to this conversation. Enron only serves to prove that those that attempt to create false market trends will end up being destroyed utterly. Their capital will flow into the market and be gobbled up by market without a hint of regret. Dr. Thomas Sowell above made that point quite clearly. Thank you for giving me such an excellent example of public ignorance about how markets work.

 

By allowing private industry react to free market increases in demands, prices and supplies will reach real natural equilibriums. Any gov't interference damages the free market by preventing private industry's natural reaction to increases in demand (which is to increase investment in more comodity availability). Taxing the comodity (which draws capital away from additional investment to increase availability of the comodity), or artificially preventing private industry in any way from doing it's job (which is satisfying increases in demand), always results in price increases and availability of the comodity going down, down, down.

 

Check Six

 

Rocky

 

 

Enron still had a negative impact on the economy due to its house of cards and the gov't had to step in with SarBox to make sure other companies couldn't do the same to enrich top executives. 

 

And the gov't charging taxes is no different than the multiple layers of "service fees" charged by financial houses.  And western gov't officials don't get enriched by spreading false rumors about companies (traders and speculators do) or collaberative bidding up or down futures contracts (again, traders and speculators).  

 

Also, don't underestimate the potential market impact of a couple of guys with some TNT or RPGs in a nation that exports vital natural resources.

Enron's impact on its investors was problematic of any type of comodity trading. It is incredibly volitile. The officials who owned Enron attempted to buy futures and "control" a local market. Just the type of thing that "speculators" are accused of today in the corn and oil markets. Their folly was they were not producers. They didn't have a dog in the hunt and there was plenty of excess capacity available to prevent them from controlling any aspect of the market. The idiots who went to jail did so not for futures trading (which is a neccesary function for successful markets) but for failing to report the actual condition of their finances. Their pyramid scheme collapsed and revealled their felonies.

 

The point of Enron is that it is impossible to commit the kind of market control they attempted. Nobody has that much money.

 

Check Six

 

Rocky

Enron was still able to do damage with its meager holdings in the privatized power generation and distribution markets.  They didn't produce, but they did control the tap. 

 

Now let's discuss why oil went up a whole $1.50 per barrel in the final few minutes of trading.  Even CNBC's money guys and Larry Kudlow paused to ponder that for a minute.

 

Think about who has the money, the control and would benefit from such a huge increase in the price of such a vital commodity?

 

 

Enron was still able to do damage with its meager holdings in the privatized power generation and distribution markets.  They didn't produce, but they did control the tap. 

 

 

Now let's discuss why oil went up a whole $1.50 per barrel in the final few minutes of trading.  Even CNBC's money guys and Larry Kudlow paused to ponder that for a minute.

 

 

Think about who has the money, the control and would benefit from such a huge increase in the price of such a vital commodity?

Your questions are good. I hope my explanations make sense because it is the way the market works!

Enron controlled much more than just futures contracts. They bought PG&E and they did control powerplants. In fact they would divert power out of state , watch prices go up, and then redivert power back to California at higher prices. The state of California knew there was shady practices occuring since the amount of power capacity was never in question. This is why they appealed to the Federal Government for relief and Bush refused to help. They made billions off of California , in fact in the later days of Enron it was the only sector of the company making any money at all.

$1.50 price movement is not rational. To give some context price movements normally occurred in cents , if even that, that is until the speculators moved in. Even if it is supply driven, that is hardly news. If we knew we should be ramping up production for past decade, then rationally, price movements would follow a distinct linear progression, not the steep uphill cliff we have seen in last year. It's not as if China's building boom started only last year. But that is why I say this is not supply oriented. No where in the world have I heard of any refineries running out of stock. I don't know of any gas stations that have run outof fuel and can't get resupplied. No pipelines sitting idle. No tanker or drop in world freight rates due to no oil being able to be shipped. The speculators are driving prices up because the only way they can make money is through volitility.