I like Curtis Sliwa, the WABC Radio personality and Guardian Angel's founder. But when it comes to talking about financial markets I think we’d all be better off if he just shut his pie hole. The problem is that on his radio show this AM, Curtis is showing that he doesn’t really understand how financial markets work. He’s giving his listeners the impression that “speculators” are what’s keeping the price of gasoline high, but that’s simply not the case. Instead it’s a combination of a global supply demand issues, and a US energy policy that can be described as “short sighted” at best, and delusional and clueless at it’s worst.
Maybe Curtis and all the other people who want to blame the speculators can explain to me how this works? When a speculator goes and buys an oil future, what exactly does he do with it? You see oil futures don’t deliver a cash equivalent like some futures, they deliver actual oil. So any speculator who’s holding that oil future when it expires is going to get a 1,000 barrels worth of oil. He’s either going to need a place to store it or 1,000 barrels to put it in. And as you can imagine there is a finite amount of oil storage available in this country, and it hasn’t been filling up any more quickly than normal so where does he put it?
Maybe he “sells it back to the oil companies at the last minute”, but if that were true, then the oil companies would figure out that game quickly and pay substantially less for a future just prior to delivery. The price would dip suddenly, right before contract expiration. (In fact we’ve seen that circumstance happen before in the energy markets for other supply chain reasons) But we aren’t seeing that today, so if it really is speculators driving up the price, then someone somewhere has a bunch of oil just sitting around waiting for someone to buy it, and again, that simply isn’t so.
So Curtis, because you’re a well intentioned and basically right headed guy on most issues, I’m going to explain this again. The only effect the speculators have on the market is an increase in volatility, not price. While oil used to move $1 dollar a day it now moves $3, but sometimes that move is up and sometimes it’s down. Over the long term they can’t have any effect on price of a commodity future that delivers physical goods. They just can’t.
What speculators are really doing, is attempting to predict the future, and with an energy policy like ours the future of oil prices is easy to predict. The environmental movement uses lawsuits to prevent new drilling and new refining capacity. They block any attempt to switch to clean coal or nuclear technology (both of which are clean, viable and available right now) and use all their influence with Congress to make sure most viable solutions are never brought to the table. The only thing they want to discuss is some form of massive tax on pollution, and then a plan to use that tax money to federally fund research into wind and solar power.
I could go on and on about how federally funding that research is unlikely to produce the desired result. (In fact I wrote something similar here.) I could write a book about how you’ll never be able to run an auto factory on windmills or a cruise ship on solar cells. I could go on and on about how there are no seriously considered technology solutions in wind and solar that holds any promise of meeting our energy needs at any forseeable time in the future. And they still cling to that dream, and will do all they can to keep the rest of us cold and in the dark in the meantime. They want us all to believe that if they are just empowered to tax us a gazillion dollars and then to spend it the way they see fit, the whole world will run as it does today only with wind and solar power.
And you Curtis, are just facilitating them through obfuscation. You’re helping them by adding to the distraction, and blaming people who simply cannot be responsible for the things you claim. By making the claims you are, you’re adding to the problem. I’ve been a quantitative market analyst for nearly 20 years. I’m an expert in behavioral finance and the effect of information on markets, and I’m telling you, you are dead wrong on this. You don’t have to make it better, but please stop making it worse.
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3 comments:
You state: "drilling and new refining capacity. They block any attempt to switch to clean coal or nuclear technology (both of which are clean, viable and available right now)"
Since when is coal clean?? There exists no technology to capture carbon at a commercial scale and there won't be for a long time. "Clean Coal" is also dumping more mercury into the air than it ever has in the past: http://www.coal-is-dirty.com/top-5-clean-coal-myths
Sorry, to say, but your "clean coal" is the dirtiest energy source in the world.
I know that making clean coal look bad is just your job, but maybe you can go waste someone else's time.
This is a post about the wholly unjustified demonizing of "speculators" in the energy market, not about the relative cleanliness of various energy technologies.
(I swear... it's like all you liberals have failed reading comprehension or something.)
Besides, while there may be some issues in scaling the technology used for clean coal, it's a completely known quantity when compared to the technology required to make wind and solar viable on a large scale.
Wind and solar don't EVER look to be a workable primary solution to the energy needs of the US, and massive government spending isn't going to change that. But zealots like you don't care about that.
The big flaw in the new religion of environmentalism is that when we're all cold and in the dark, we aren't going to care at all how "dirty" an energy source is and all the preaching in the world isn't going to change that. I'll burn radioactive baby seal fat mixed with the blood of environmental activists in my fireplace before I let my daughter freeze, and to hell with the CO2 levels it produces.
I really wish all you people would just grow up.
I’d just like to leave one more comment for (the friends of) ArcticElf who was kind enough to link this and other pieces onto his LiveJournal page. I wrote both these pieces in a fit of anger, and I should have taken a bit more care. When I reread them, it seems to me that I’ve been a little unclear in the way that I define a "speculator".
If a shipping company or an airline or some other large corporate energy consumer knows that they’ll need XXX amount of fuel in 2011 to run their business, they might go to the market and buy oil futures to hedge themselves. They make their living from running an airline not speculating in oil, but since they are buying oil futures that expire in 2011, they are speculating none the less. When I say that speculators try to predict the future I meant to include all speculators, even the airlines and shipping companies.
So what I guess really should have said was “market participants” because they are in effect, all speculating. But when I said that more speculators in a market increases volatility and not price, I meant that an increase in the number of real speculators in a market will usually have that effect. When I say a “real speculator” I mean someone who is making their living by buying and selling oil futures. This is more or less what I do for a living (although lately I’ve been working in the equity markets and not energy as I used to.)
Real speculators increase volatility because they (typically) have a shorter term outlook than commercial traders. They aren’t buying 2011 futures and holding to expiration, they’re buying them at 1:00 PM, and selling them in the market at 2:30. That tends to increase the speed of price movement both up and down. Since speculators are sometimes betting on a short term rise in price and sometimes betting on a short term drop in prices don’t tend to push the market one way or the other. Commercial traders however will push the market, and pull the “real speculators” along with them. Airlines, shipping companies and others are driving the price up, and they are doing so because they should. Given our current energy policy, that’s precisely what they should be doing.
My problem is I’m a little too close to the issue. The guys who’s job it is to hedge for the airlines and the guys who do what I do, are actually all the same bunch of guys. When we talk with each other we’re all talking about the same thing… speculation. But some people do it for one reason and some for another, so I should be a little more clear.
Actually what I should really probably do is just lighten up a little. It’s just that I’ve met a bunch of guys on Wall Street who were utterly reprehensible people. Many of them are real life villains that even their dog would hate. But to a fault the guys I know in the energy business are the best guys in the industry. They are mensches. They all have souls, and hearts, and are some of my best friends. And very often the bigger they get in the business, the more decent they are. And when I hear them being bashed by those idiots in congress (who almost certainly are part of the former group as well) I get too worked up about it.
Anyway, I hope this clear sit up a little. Feel free to drop any questions by.
Thanks.
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