- Blame The Speculators

I don’t know much about how the record industry works. Oh I’ve bought a record or two over the years and gone to the occasional concert, but that doesn’t make me an expert. So if someone were to come and tell me that the reason that the entire recording industry is doing so poorly was because of “record promoters” then I wouldn’t be in a position to argue very much. I’d find it hard to believe, but you never know… someone may have a point so I’d owe it to them to allow them to make it.

It’s the same thing with speculators in the energy market. Most people don’t understand what it is the speculators are doing so they believe politicians when they tell them that it’s the speculators that are ruining everything for the rest of us. That isn’t really what’s happening, and the politicians probably know better, but the left leaning major media is more than happy to carry water for them on something like this. Take this specious bit of blithering idiocy from the MSNBC “AnswerDesk” website:

With oil prices racing toward $70 a barrel, Answer Desk readers want to know what it will take to send prices lower again. Wyatt in Florida wants to know just how much more oil is out there. And Mark in San Francisco can't see why oil speculators are allowed to bid up prices -- and ruin life for the rest of us.

Take a look at this Google search and you’ll find dozens of others that are equally vacuous and lacking in anything resembling facts or reason. They’re all ready to point an accusing finger at the speculator because to them, a speculator isn’t someone that can garner a lot of sympathy. They can depicted as rich, greedy, and out only for themselves. And in this age where more and more we’re forgetting the lessons of eastern Europe and collectivism is becoming more fashionable again among the elite, there is nothing the mainstream media considers worse.

But what is a speculator and what is it that they actually do? What role do they play in the marketplace? Well since that’s what I do for a living, let me tell you. A speculator’s job is in some sense, to predict the future. It’s their job to look at the news, the public economic statistics, the various wars, and other public political events and decide what they think an asset is going to be worth tomorrow, compared to what it’s worth right now. In fact in a very real sense, the behavior of speculators in the market can be considered an early warning system for the policy decisions of government.

When government does something smart like spend less of the taxpayers money, the speculators in the market react to that and drive stock prices up. When they do something stupid like increase economic regulation for no reason, the market goes down. There are no conspiracies or other cooperation between speculators, in fact in most markets they usually work directly against one another. But the results of their collective decisions tell us a great deal. When they see good news for a company or other smart decision making the stock goes up, and the premium on their bonds go down (which means that they can then borrow for less). So that’s what speculators actually do. They communicate information to the rest of us through their buying and selling. They provide feedback to people who are interested in how their decisions will effect the future of a company, or an industry or a government. Their buying and sell tells us all whether people are acting smartly or stupidly in their expert opinions. You’ve heard of the “wisdom of crowds” … well this is it.

But when it comes to energy policy, the government isn't interested in hearing anything like that. That human monument to unjustified ambition, Senator Chuck Schumer, has come up with a cute catch phrase to try and rally the uninformed masses into letting government step in to prevent speculators from showing us how badly the government is doing with regard to energy policy. He, and some other left leaning politicians have invented something they’re calling "The Enron Loophole". They’ve never been really clear about what this loophole is, but their thinking is that if it has the word "Enron" in it, then it must be really bad. They’re using this so called loophole to try and shove their further into the energy markets, and use government to prevent people from buying and selling oil futures. There isn't really any loophole, and thankfully, no one seems to be taking them all that seriously.

But I suppose it's right for the government to be concerned about what the speculators are telling us. Right now, They are trying very hard to let us all know that with regard to energy policy, this country is about to go off a cliff. Thanks to lawsuits from leftwing environmental groups and global warming alarmists, we have all but banned new domestic drilling and exploration for oil. Lawsuits citing the clean air and endangered species acts have been extensively used to prevent the construction of additional refineries, and to prevent the implementation of nuclear power plants. Global warming has gained so much momentum, that politicians feel like they can't say no, regardless of the lack of evidence. So they've bene shutting off every reasonable chance to make energy any cheaper in any way.

Left leaning politicians want to blame the speculators, but all the speculators are doing is reacting to the way the world looks to them. They look at the state of american politics and realize that we have apparently lost our minds with regard to environmental causes. That’s what’s prompting speculators to push oil prices higher. It’s the fact that there are so few voices of reason anymore when it comes to global warming. And since it's a requirement of the global warming movement for oil to be much higher in price in order to discourage others from using it, they are just "going with the flow". They aren't judging whether it's good or bad for America, only whether it's a smart thing economically. And the obvious answer is no.

Did you know that the homeless population of New York City each has a carbon footprint too big for the goals set by the global warming movement? It’s true. In order to give them everything they want with regard to their environmental goals, we need to each be consuming the amount of energy per person that was being used by your average American in 1690. And that makes our modern industrial society and our modern economy totally unsustainable. Energy speculators know that, and they’re just backing out the math.

So don’t blame the speculators for putting their money where they think it’s going to work for them. They’re just fulfilling their role in society, and doing what the market asks them to. Instead, blame the global warming movement for making the bet such a sure thing, and our politicians, for believing them when there is so little evidence. Speculators are just the canary in the coal mine. And if you’re upset about the noise they make, the right solution isn’t to kill the canary.