Thursday, October 30, 2008

The way bloggers think -

It is interesting - no, make that frustrating - trying to engage some people in a discussion. Dave the Justus is just such a one, as instanced by this question and response...
Comment by probligo

October 28, 2008 @ 9:37 am

“They also perform a valuable service for the economy by providing stability and certitude that wouldn’t otherwise exist, making commodies less volatile.

How so, Dave? “…stability and certitude…” from speculation and market wagers?

How does buying 250,000 tanker load of crude, then having it sail in circles somewhere south of Africa constitute a “stabilisation” of a market?

Why is it neccessary for there to be “profit makers” or “profit takers” sitting between producer and consumer. They add nothing to the value of the product, other than their profit for taking a bet on the price increasing.

Explanation required because that statement is entirely contra-intuitive. It makes no sense. It is water running uphill.

Comment by Dave Justus

October 28, 2008 @ 10:07 am

“How does buying 250,000 tanker load of crude, then having it sail in circles somewhere south of Africa constitute a “stabilisation” of a market?”

I’ve never heard of such a thing. If that is what you think commodoties speculators do, then I can see why the subject confuses you.

I can accept that Dave does not like me using simile to make a point, but it is his outright refusal to answer that point that is the major difficulty.

I challenged his statement that middle traders, future traders, commodity traders "providing stability and certitude that wouldn’t otherwise exist" and his only response was to indulge in petty denigration and avoidance of the question.

Well Dave, I guess that from now onward you are going to have to write your own comments to your pieces. Oh, yeah, forgot there are a couple others who float through from time to time. Some are interesting, others seem somewhat pornographic.

Yeah, it is your blog. You can censor what is said. So, I don't care all that much. Been nice meeting you.

Tis sad really.


Al said...

I'd bet that Dave just didn't understand that you were using a simile. It took me a rereading to get it myself.

Right at the moment, though, I'd like to hear a good explanation of the process myself. Your boy Sam(uelson) doesn't get into that?

The probligo said...

Not when I was studying economics.

The principles and mechanisms of hedging, futures, and other derivative trading were not covered at all in my professional qualifications. They started to come to the fore here in the early '80s and there were training sessions then.

The probligo said...

Oh, as for the simile of the oil tanker...

Can't claim it as entirely original. First time I heard it was in a commentary some years ago when the oil price hikes started to kick in with a vengeance - the "second oil shock".

Sorry, I am at work and supposed to be doing things... like work.

Futures, Forwards and Hedges all have fairly simple mechanisms. Puts and Options get me spinning, slowly, but I think that I can handle the idea.

The debate with Dave is over the impact of derivative trading, and his statement that speculation has the effect of stabilising markets.

I say that runs contrary to intuitive analysis simply because speculation and trading for profit together rely on instability and uncertainty to maximise profit. Stability in a market would effectively rule out speculation until such time as the market could be destabilised.

Dave Justus said...


You example (or I guess simile, although it is at best a metaphor) was so far removed from how commodities markets function and what their purpose is that I didn't know where to begin from that.

I thought it was fairly general knowledge that commodities trading provided a stabilizing function by assigning monetary values to future products. This doesn't mean commodities trading is stable, only more stable then it would be with out it. Just try to imagine if at the moment every barrel of oil was pumped, it would be put on the market and sold immediately, how much chaos would result.

I will admit though that my reply was a bit rude though, and that wasn't necessary. I apologize for that. I had hoped that you would further explain you thinking that caused you to use an analogy that made no sense to me, and then we could further continue the discussion with me understanding where you were coming from. Clearly my rudeness forclosed that possibility, and that is my fault.

Sometimes I get frustrated with you as well, because I can't figure out where you are coming from on things. That isn't an excuse for uncivil behavior however.

here is a pretty good explanation of the positive effects of futures trading.

The probligo said...

Apology accepted Dave, without reservation.