Controlled experiment in futures markets: onions
money.cnn.com
money.cnn.com
It's also worth noting that the distaste for market speculation is inversely proportional to how well the market is doing.
"Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April."
I mean, seriously? For oil and corn they compare two points, but for onions they compare October 2006-April 2007, April 2007 - March 2008, and March 2008 - April 2008.
I could just as easily look at the change in onion prices between October 2006 and now, and then pick 3 arbitrary dates when oil prices hit extremes, to "prove" how having a futures market makes prices more volatile.
Going up 400% in half a year versus 300% in two years is pretty volatile.
That being said, they probably use bad stats to dumb it down for the average reader. What you want to look at is the {rolling stDev, average true range, volume} to get a better feel for it.
Also, it's happened in other commodities that you can trade contracts on, but they are so thinly traded that they can make really big moves.
But for all we know the latter item could have gone up 1,000,000% in the interim and then settled down to 300% at the end of two years.
I agree with your point that it's not the best statistic to show the basis, but the underlying premise remains the same.
What actually happened is a little more complicated than the article suggests: the business now attracts people who love that kind of volatility.
The FRB can remove the slosh by not rolling over loans to primaries when they come due, and by putting back the trash securities they took as collateral through the TAF and TSLF.
Oil is skyrocketing because we are consuming more oil than producing. On a daily basis.
I won't deny that there's a commodities bubble going on right now. But it's not just hedge funds. You have new ETFs opening up for individual investors that grant exposure to other asset classes, which isn't necessarily a bad thing but it's giving the smart money the opportunity to bail before the pop.
Bubbles happen. It's part of the market. Regulation or not, they will still occur.
Oil has been fluctuating by as much as 10% per barrel in a single day. That's not due to changing global demand. Global demand for oil can't even be measured that precisely.
Right now, the oil futures market is overreacting to everything -- up to and including speculation that the market might overreact next week. The overall trend is correct, but there's no rational argument for the ~$50 gain per barrel we've seen since the beginning of the year.
makes sense to me.
There's nothing wrong with having a market. But the market has to be open for everyone.