I have no love for speculators at all, and their acts are not benign, but misapplied central banking to flood equity when we have a solvency issue is the floor of the elevator which keeps rising under spec prices. To me, anyway.

To me this looks like a belated flight-to-hard-assets, now being fuelled at a fantastic rate due to prevailing negative real interest rates (especially in the US). At least, rates available to high-powered money.

The problem of policy here is those interest rates. The exchanges are working just fine in response to them.

That kind of price increase is speculative — especially for chickpeas. To me it does indeed appear that speculators, looking towards inflationary hedges, are creating a self fulfilling prophecy that has no referent to the underlying good being traded.

Note also that the volumes and prices in other less traded futures immediately surged after the ban. That’s immediate evidence of speculative funds and not a sudden increase in demand for these other underlying commodities.

Too much speculative capital has been distorting markets — real estate, lending, etc… — all over the world.

Too much new capital, the $500B that the FED swapped for illiquid securities, the $100B from the BOE, plus the ECB’s contribution (don’t remember the number offhand) have created a huge pool of capital looking for a home.

PERHAPS 60% OF TODAY’S OIL PRICE IS PURE SPECULATION
http://financialsense.com/editorials/engdahl/2008/0502.html

In my opinion, there is clearly a widespread bubble mentality with respect to oil and other commodities — i.e., long term trends of increasing demand and diminishing supply are used to justify any increase in prices as sustainable, no matter how dramatic. I realize that near-vertical supply and demand curves as well as other non-bubble dynamics can explain sharp price increases, but the pervasiveness of this do-not-question-it mentality seems to make a bubble likely (now or in the future) in any market where the mechanics of exchange and inventory make it feasible.

Has anyone seen attempts at predicting consequences if commodities ARE in a huge bubble? i.e., if peaking speculative interest and a demand shock cause oil prices to drop in half over a period of months, the impacts on agriculture commodity prices, US trade deficit, currencies, etc seem likely to be quite dramatic.

The “observers” mentioned in the article are correct: prices are being driven by fundamentals. Speculators don’t drive commodity prices, they anticipate them. They are, however, convenient scapegoats for governments trying to duck responsibility, the public who wants to blame someone, and analysts who don’t understand the fundamentals.

Prices are a hugely valuable signal. Economies and economic agents NEED crisp, clean, reliable and current prices to effectively allocate the means of production and capital.

Preventing the financial markets from pricing these goods does nothing to change the real supply and demand situation on the ground and most definately does not prevent inflation.

As always, central banks and loose monetary policy is the cause and capitalism takes the blame. Capitalism is the ultimate scape goat.

TheFinancialNinja