Of course. The net present value of a stock or asset can only be calculated based on its expected future price and earnings. Since there's no way to know this with 100% certainty, stock prices are inherently speculative. Even value investors must struggle to accurately value a company's intangible assets.
When people say that a commodity's price is being driven by speculation and gambling, they mean that it has shifted from the former to the latter. This means that the price is disconnected from the actual, physical use of the commodity, and is instead being driven by the inconstant passions of the commodities market itself.
These are indistinguishable. Unless you want to restrict markets to being only between suppliers and consumers, there will always be middlemen attempting to predict the price, and since they need to eat, they will be attempting to profit from changes in price.
Which is fine because suppliers and consumers are many times willing to let others handle the risks of price changes (volatility), hence the market for futures.
What information asymmetry? The previous comments referred to speculators betting on price movements.
Deliberately creating fraudulent information asymmetry would be altering data in industry reports and publishing false manufacture/consumption data. Which, I assume, is illegal.
1. https://www.usnews.com/opinion/blogs/economic-intelligence/2...
It feels like you're trying to say, "this market would work fine if it weren't for those meddling bad actors" as a response to "the problem is the bad actors".
That is what I would like to do, yes.
What you’re suggesting means a farmer selling wheat futures for delivery a year from now needs to be at the market at the same time a bread maker is looking to buy wheat a year from now. That basically doesn’t happen because the bread maker doesn’t need that level of forward looking price stability.
The market thought that China was going to need a lot of lithium for EVs, so the price went up which incentivized higher production and lower use. That's a good thing because it made it more likely that China would meet their demand. Now the market has better information that China is going to need less lithium than previously thought so the price drops which makes it viable for previously marginal users.
All of the speculation is entirely based on how the news might impact the physical product.
Oil prices went negative precisely because storage was full and people didn’t want the obligation to take delivery of the oil when nobody was using it.
Mass media is mostly crap at price-move stories. It’s less manipulation than false correlation. (The writers are incentivised to write, not to write a particular story.) There is a lot of thought that goes into lithium pricing. Current price moves are mostly speculation about supply, given near-term demand can be pretty precisely measured given battery production in operation and breaking ground. (Battery supply limits EV production, which itself outstrips demand, so volatility in consumer demand is tamped at the extraction layer.) Recent debate is about potential supply from brine in China.
However, there is copious cause/effect data showing that non-sobriety is expensive in terms of health- and societal repercussions.
> Morality is the differentiation of intentions, decisions and actions between those that are distinguished as proper and those that are improper.
Morality seems more of a subjective call, e.g. "Thou shalt marry heterosexually ahead of procreation", than a stochastic analysis, e.g. "X percent of fatal car crashes involve blood alcohol above Y concentration."
My argument is that we can declutter discussion by treating all "moral compass" arguments as orthogonal to an "ethical plane".
If our subjective judgements are treated as internal (booze==sin), and de-conflicted from the external, legal arguments, we'd be in better shape.
But too many are invested in the status quo to tidy up the model like that.
It’s entirely reasonable for law to take the moral stance that people should broadly pay for the benefits as participating in organised society, so to ensure the long term upkeep and maintenance of that organisation they derive benefits from.
At which point consumption taxes have nothing to any moral judgement about the consumption of various products, but simple calculus that the voluntary consuming those products increases the cost of running our society, and so you should pay a bit more for engaging in these activities.
But none of that is judgement on the morality of activity. I personally couldn’t give a shit what drugs you or anyone else consumes. But I don’t particularly like the idea of having pick up the bill later for an activity I didn’t participate in. So if you pay some extra taxes to cover to cost of additional healthcare, then feel free to consume whatever the hell you want.
The repeated grouping of morality/ethics into purely religion/judgement throughout this thread really bothers me. IMHO your argument is an argument of moral propriety of making people pay for others choices. You’re semantically choosing to not call it that is all.
But my point is there’s a difference between moral basis for having laws and taxes, and their specific implementation. Consumption taxes are just one approach for implementing a social system build on the basis “fair contribution/usage”, or whatever we want to call it (my views on “moral” behaviour are too nuanced and confused to fit into an internet comment, so let’s just work with something simple). But the taxes themselves aren’t a direct expression of moral judgment themselves, but rather an implementation detail of a broader governing moral system that provides legitimacy to laws and the states rights to enforce them.
It might be a distinction without a difference. But if someone is going to call out consumption taxes as somehow more inherently driven by moral judgments than any other part of a system of law, then I think making the distinction is reasonable.
Unless you lock in all commodity costs, how is long term planning even possible without speculation? If you plan to open a distribution center somewhere, the optimal location depends on e.g. fuel costs. You can’t do anything but speculate about the costs of those commodities. So I don’t even see the need to track down sources. Do you not see that you just need to guess at the (future) cost of certain things?
You are just making a bunch of claims with no support but “people I trust say so so the claims are true”. Now I really will bow out.
Of course it is "speculating" trying to estimate fuel prices, but this is not meant, when people condemn "gambling" on the stock market. What they mean is people with lots money investing wherever short term profits are possible and often gaming the market while doing so. So creating unexpected price changes for the actual industries needing those supplies and they obviously don't like that. But I couldn't draw a clear line between "necessary gambling" and "unnecessary gambling".
Followed by
> But I couldn't draw a clear line between "necessary gambling" and "unnecessary gambling".
What? you literally just drew a very crisp line.
Basically, I couldn't define this clear line in a law. And I am not sure, anyone can.
The existence of the futures market does not prevent a copper provider from entering into an exclusive sales contract to sell 12 months from now to a specific consumer. However, unless they match the current 12 month contract price, one of them is taking a bad deal with what they can get on a much more liquid market. Additionally, their counter party risk is now much more significant because they are tied to one other party.
Maybe you could actually offer something specific about how “the speculation market is more of a hindrance than a help”?
So far whenever I see this, it’s people who don’t like that the price changes on them but their solution is to remove participants from the market to a point where it is so illiquid the lack of trading looks like the price isn’t moving.
Let me try to answer this though: one example out of many is how Kodak speculated that the transition to digital cameras would lead them to lose profit over the long run, so they chose not to pursue the route. This was a long term plan that lead them to bankruptcy. (of course, they changed course once they realized that digital cameras were competitive options, but the original long term goal was to continue the film camera route, shown by their unwillingness to even try to produce digital cameras as an possible option)
You can also do "bad" things on first order by hoarding the items themselves.
More narrowly, the ability to forward sell or buy things allows financing of production but in turn it needs people willing to take the other side. Derivatives money is a thing.
You need to manufacture a widget and it must cost no more than $5. You have a few inputs to your widget, some made with steel and some with plastic. If steel and plastic prices increase, your inputs cost more than $5 and you’re making a loss on every widget you sell.
So you go to the futures market and take a bet that the input prices will increase. If you’re right, you win $, which makes your widget manufacturing profitable and you’re still in business. If prices fall you lose the bet, your profits are lower. But hey, at least you’re still in business.
A responsible, well run manufacturing business benefits from the existence of such a market because it allows them to de-risk.
What’s the person on the other side of the trade up to?
This debate reminds me of the lead up to the Onion Futures Act, where moral outrage over speculation led to a ban and subsequent lack of insurance (and higher price volatility) for onion farmers. To the point that the son of the farmer who first lobbied for the ban returned to Congress to ask for its repeal.
The same thing: hedging/insuring against price changes. The supplier (ultimately, a farmer, steel mill, gold miner, electricity generator, etc) is getting a guaranteed price for the commodity they're selling, reducing risk.
Again, these aren’t theoretical considerations, we’ve always had naïve Puritanical elements seeking to ban speculation, and in some assets and jurisdictions they have succeeded. Reducing market participation has never worked.
This isn't remotely how manufacturing works. Manufacturers are focused on making the widget, for them the most important thing is that material is available, not a paper contract.
Essentially you are saying 100% of bad things are bad. Which is true, but also meaningless statement. Since it would still be true in a utopia with no bad things.
"nah brah it's just rational actors rationally acting with rationality"
Supply and demand is a thing the same way the convention of shaking hands upon meeting is a thing.
If supply and demand is just a convention, they what are the alternatives?
I guess I’m ignorant, but central planning is the only one I can think of.
Look at the futures market. Speculators are a big part of the liquidity of the futures market.
Price of wheat is $60/bushel. Farmer won't harvest for another 6 months and is worried prices will drop. They can secure a future and lock in the price now.
Wheat purchasers aren't on the other side of that trade, because why would they lock in a higher price? A lower price benefits them.
Speculators come in and bet on the price of wheat, creating a deep pool of futures that can be bought and sold.
Neither are great, but one is definitely preferred.
You can paint it as a bad thing but there are useful things that come out of this.
If someone wants to 'gamble' that grain prices will be higher in the future, they can buy futures. Where do these futures come from? Farmers today who want a fixed price for their future harvest.
And what about the 'gamblers' who bet that the demand for lithium is going to increase, and therefore invest in building a lithium mine?
When that doesn't hold true you will end up with Failure To Deliver (FTD) which causes Very Bad Things™.
Generally speaking though commodities markets aren't rigged in the way that people complain about in some other markets but they are subject to pretty violent volatility in the face of uncertainty.
This is largely due to pretty fixed supply with highly variable demand. i.e I can't just shut off all the oil wells right now and return ships currently on-route to energy exchanges and even if I could I wouldn't have the storage. Storage is also an interesting one because storage costs money and was pretty much why oil contracts went negative for a short period.
Predatory gambling where the participant can only win good feelings and lose money, is the immoral, addictive nightmare nobody wants. When talking about regular joes anyway. Be honest enough to sell good feelings straight.
I can't comment on the select finance bros who have manipulated the rules towards a specified outcome. Not really casting lots anymore at that point.
If it gets too corrupt all bets will be off, and that will hurt everyone who needs short term liquidity and to take speculative moon shots.
commodities with inelastic supply and inelastic demand are prone to very wide price swings.
inelastic supply means that increasing prices don't increase supply. in the case of lithium, it take time to bring new production capacity online, so supply is very inelastic in the short term.
inelastic demand means that increasing prices do not decrease demand. in the case of lithium, batteries are a very valuable product, and the raw cost of lithium is a small percentage of their total value, so increasing prices for lithium do very little to reduce demand.
the price movement here is totally predictable and exactly what you would expect based on standard economic formulas taking into account supply/demand elasticity. it is not speculation or gambling.
demand went up, supply lagged, the price spiked, supply increased, the price went back down.
electric car sales may still be growing but growing at a lower rate, and projected demand growth is probably decreasing relative to projected supply, so the price is falling.
> Where as car sales might be stagnating but electric car sales are taking a larger portion of total car sales ie electric car sales/lithium use is still increasing.
I'm quite surprised the article doesn't mention sodium batteries. Li-Ion batteries are notorious for thermal runaways, so CATL and Tesla already shifted to LiFePO batteries quite some time ago. I think everybody would be more than happy to ditch Lithium based batteries altogether.
Buyers and sellers could trade directly among themselves if they wished, and if the commodity markets were divorced from reality (either unable to deliver on futures contracts or having futures settled at different prices than their contracts stipulate) nobody would use them. Because speculators don’t take delivery, how they react to news and other events is only assisting in price discovery between the time a future is issued and settled, because at settlement time there is no immediate uncertainty regarding supply and demand in the spot market.
I think you might be making a common mistake in your comment of equating news for popular consumption with actual news that traders, buyers, and sellers care about (usually very quantitative and well guarded data with nuances that an article for public consumption will never account for). Articles for popular consumption are not moving markets very much, especially in commodities where public involvement is low (vs stocks) and consequently public sentiment has little effect.
"demand and supply"
OPEC is a cartel constraining supply to increase prices, it's not a free market but an example of "demand and supply" in it's most brutal form. OPEC prices are not about "gambling".
They need to make continual bets on the health of transports, changes in energy mix etc in order to move or keep the price in a favorable band for them. Misstep and the price of oil falls, cutting into their profits or push it too high and face demand destruction and shale extraction coming online because it's profitable at those higher prices, increasing competition and stifling volumes simultaneously.
But the OP is confused about their comment about commodities in general. They are largely based on supply and demand, but most companies need to predict supply and demand months and years in advance because converting raw material into a sale to the end user is a multi month to multi year process, so a natural result is that the prices are based on speculation of supply and demand, months to years in advance.
There’s also an element of speculation on speculation driving short term trends.
But that practically means they are based on speculation about possible future supply and demand, and we are more or less taking it on faith that that speculation is correlated to actual supply and demand.
This statement almost seems tautological. Of course prices are based on speculation about possible supply and demand, nobody has a crystal ball that can tell them “actual” supply and demand.
In a competitive and liquid market, you expect prices to rapidly approach “optimal”, because otherwise there’s an opportunity there for someone make money out of the market inefficiency, buy correctly predicting when supply is high, and buying, then selling when supply is low. Which is exactly what future etc do, except without the need to actually move the physical commodity around.
Exactly, no one has such a crystal ball. And this actually generally applies not just to future supply and demand, but even to the past: it's actually impossible to measure supply and demand across any significant industry, to check whether prices matched it or not.
And yet, economists and economical theory enthusiasts talk about the "law of supply and demand" as if it's some scientific observation, and not just a simplistic model that seems intuitive.
> In a competitive and liquid market, you expect prices to rapidly approach “optimal”, because otherwise there’s an opportunity there for someone make money out of the market inefficiency
You might expect that if you believe in the law of supply and demand, but as we were discussing, that is not how prices are actually formed, and anyone betting based on observed supply and demand (to the extent that it is actually possible to observe them) will be beat in general by others who are betting based on current speculation, which is how prices are actually formed.
For example, if you are betting that gain prices will increase in the winter because that's what you think they did every year, and ignore some prominent pundit predicting that they will decrease this year, you may well lose the bet if everyone else believes the pundit. And that will be true regardless of whether grain will be in low supply or not.
Can you give a real life example of when a pundit giving a predict against the actual supply that had everyone buy-in? Says, oil price goes down even when demand is hot?
Also, this type of pundit influence is common with the price of stocks. It also happened with the price of natural gas in Europe last year, when it increased based on lack of confidence in reserves that turned out to be misplaced, and never really recovered.
In any case, as the investors buy the product they eventually have to sell it, meaning over the long run demand and supply are good measures of "actual" usage and production. You know this because there's never a bubble that doesn't collapse and return to equilibrium.
That's not necessarily true. It depends on the product and industry, but it's absolutely possible to horde products for long periods of time (see diamonds and gold) or to choose to destroy products rather than sell them at a price you don't like (see public transportation in many US cities in the 50s, or fancy food items).
But we do see prices approach optimal. Your argument is predicated on the idea that the law of supply and demand is only a useful model if the actual price always follows observed supply and demand. But for that to ever be true, it would require speculators to have a crystal ball, otherwise there’s no reason to believe the speculated price will always match the “optimal” when the point in time being speculated about actually occurs.
The law of supply and demand tells what market systems will trend towards. But like complex control system, having a governing idea about long term trends doesn’t mean momentary perturbations don’t occur, it just helps you understand what the system will do after the perturbation.
To claim that the law of supply and demand is useless, is like claiming that Hooks Law is useless for understanding how suspension systems in cars work, because perfect springs don’t exist, and cars don’t remain stationary.
Perfect markets don’t exist, perfect information doesn’t exist, so why would anyone expect real markets to perfectly follow the law supply and demand? And clearly markets do follow the law of supply demand at the macro level, when long periods of time are considered, otherwise commodity pricing would be entirely arbitrary and wouldn’t in anyway reflect the value of the commodity to society at large.
Where do you see that? What does it even mean, how can you objectively tell what is the optimal price for a good or service, so that you can later say that the market converged to it?
For example, is 1000$ the optimal price for an iPhone? Or is it simply the price Apple chose? If they sold it for 500$, would they make more or less money? How do you know?
> And clearly markets do follow the law of supply demand at the macro level, when long periods of time are considered, otherwise commodity pricing would be entirely arbitrary and wouldn’t in anyway reflect the value of the commodity to society at large.
I would argue that it often is, at least for many non-essential products. The price of many non-essential goods is much much higher than the price of essentials, even when those non-essential goods are cheap and easy to manufacture (say, softdrinks or many cosmetics). The price of most energy resources is largely controlled by non-market forces, even on the face of it.
Also, why restrict this discussion to commodities? If we switch to investments, the price of stocks is quite obviously arbitrary as well, with "market makers" often controlling the allowed prices (or at least, price volatility) for stock. The price of real-estate is often determined to a large extent by the price of borrowing, and that is quite explicitly set by banks and the central bank based on nothing related to supply and demand. Services are even more complex, with huge variations in price based on entirely subjective factors.
Because they’re generally pretty fungible, and have a larger number of sellers and buyers involved in the market, hence their markets are more likely to behave like an ideal market. The same does not apply to housing, or services.
> Where do you see that? What does it even mean, how can you objectively tell what is the optimal price for a good or service, so that you can later say that the market converged to it?
For commodities, I would point to the reasonable price stability that exists. As evidenced by the fact that basic goods don’t frequently suffer from repeated shortages or gluts of supply. Strongly indicating that the price is both high enough to incentivise production, and stable/low enough to allow for relatively low risk long term investment in production, because continuous long term demand is expected.
> For example, is 1000$ the optimal price for an iPhone? Or is it simply the price Apple chose? If they sold it for 500$, would they make more or less money? How do you know?
These is nothing about the iPhone market that suggests it’s anything close to an ideal market (for one Apple have a monopoly on iPhone sales), so I don’t know why you would expect it to behave like an ideal market.
> The price of real-estate is often determined to a large extent by the price of borrowing, and that is quite explicitly set by banks and the central bank based on nothing related to supply and demand. Services are even more complex, with huge variations in price based on entirely subjective factors.
What’s your point? Of course a law describing how ideal markets work doesn’t correctly describe markets well know for being extremely distorted and non-ideal. Next you’re going to tell me Newtons laws of motions are all useless because they can’t help you model the behaviour of objects travelling at relativistic speeds.
You seem to be struggling with the idea that a model doesn’t need to be perfect, or applicable to every real world scenario, to be useful. All models have their limits, that no surprise to anyone. That doesn’t make them useless, it just means you need to be aware of limitations, and adjust expectations appropriately.
Speculation and gambling about what future prices will be are not the big issues here, the markets themselves are completely broken (by design).
Empirically, no. Large blocks of stock don’t have a liquid market. Forcing them into the open means chopping it into tiny pieces while using derivatives to hedge, for the sophisticated, and getting hosed, for the unsophisticated.
In fact, many have the opposite effect and result in more efficient price discovery. Take naked shorting for example. Without shorting, it would be far more difficult for an equity research firm to be incentivized to look into fraudulent stocks, as was widespread with Chinese companies a few years ago. Without their efforts, stock prices would have remained inflated for longer.
Many markets (e.g. Australia and Switzerland) do this. We have the comparative data to show it doesn’t do anything good while increasing volatility.
You listed a bunch of financial buzz words and didn't disprove OP.
Please show how naked shorting incentivized good due diligence.
You could have just pointed to the massive new supply that was announced, it's the logical reason why the price dropped.
Geopolitics are the primary mover of markets currently.
Naked shorting skips it all. Some market makers are privileged and can sell stock they don't own and didn't borrow. So they have a privilege of printing stocks in the short term, and that's quite broken, and many of them abused this position to manipulate markets. Normal participants in the market can't naked short.
Naked shorting means that the market maker who supposedly sold you a stock, can now fail to find the stock he sold you, leading to "fail to deliver".
The excuse given is that naked shorting allows for more liquidity, but given the other problems, I think it's bad.
I assume you have a counterpoint to the decades of data the NYSE, SEC, Financial Crisis Inquiry Commission and others around the world have collected that show naked shorting improves liquidity without FTDs negatively impacting price discovery while tamping volatility, evidence made particularly robust by the fact that naked shorting is permanently banned, and has been temporarily banned, in many markets, such as Australia, Switzerland and, for some stocks post crisis, in the United States? (See Wikipedia for a summary.) The whole affair reminds me of the lead up to the Onion Futures Act [1].
No one designed this system. It grew, organically. People started recognizing parts of it they could take advantage of, and pushing to have those parts become more prominent, largely individually (as opposed to in one grand conspiracy of collusion).
It may be true that some of those people believe it is in their best interests that the markets be "broken", and so have pushed that far intentionally, but there is no one overriding will and no single hand on the rudder to even be able to do that on purpose. It's all just greedy people trying to get their own interests put before everyone else's.
How do you spell "insider trading?"
For example, if you figure out a cheaper alternative to lithium, and want to bet that lithium prices will fall as a result of reduced demand, then those are your spoils for figuring that out.
Without that fiduciary responsibility, it's not insider trading, it's just trading. If you overhear someone with inside information talking about some inside knowledge, then trade based on that, you're in the clear (as long as you didn't collude with the leaker.)
We aren't rushing to make nuclear fusion because we have insufficient electricity... and you can't replace what the scientists know with another coal plant.
Global survelliance, inifinte database records and instant comms has really destroyed the potential to keep and develop real secrets. It's going to hurt (badly) in the long run.
So insider trading for as long as GCHQ/CIA/NSA refuses to rat people out....
the movement reflects the expected future supply and demand at the time.
The speculation is something that financial engineers use to offload the risks of such commodities from one party to another (such as from producers to consumers of said commodities).
Note also the article refer explicit to EV in different paragraphs .
it's described in the article.
> with the expiry of a more than decade-long programme of subsidies for EV purchases.
> the expanding supply outlook for the metal is mainly what is pushing prices lower this year
> Supply is coming on stream faster than you can say ‘boo’. > first-ever lithium deposit to be discovered in Iran’s mountainous western province of Hamedan. At an estimated 8.5 million tonnes,
> China is also expanding its lithium-supply capacity from lepidolite, which, while considered the most abundant lithium-bearing mineral,
- journalists attribute price changes to whatever story they can find. Sort of like how every day there’s a story of why the Dow moved by a fraction of a percent.
- price moves are almost entirely supply and demand. Sure, speculation can change price in the near term, but considering the size of these commodity markets, you’d have to believe an absolutely enormous amount of capital is at play in speculation.
You will also see margins themselves widen until the system falls in on itself.
We dont have a financial margin tracker.
Also increasing interest rates in a highly indebted economy increases inflation; short term by widening of margins and long term by offputting energy extraction.
Lithium will explode soonish.
Margins amplify volatility.
That's what a zero interest rate policy buys you.