The elimination of ETFs & ETNs

[pianodoctor]

Re: The elimination of ETFs & ETNs

Instead of addressing your question (because I don't have a good answer.) I would point out that demand for oil has not dropped nearly as much as the price has dropped.

I'm thinking they had what amounts to a "fire sale" on oil because they had so much inventory going into economic crash (with more ships coming overseas), and when demand was cut they then found themselves in the position of having so much excess that the ships had no place to unload and oil tankers ended up anchored offshore- reduced to being essentially very expensive storage. Ordinary storage is expensive enough, but then it got real expensive. The solution was to drop prices drastically and get rid of the excess as quickly as possible to achieve a more sane level of inventory & storage costs to match demand once demand fell off after the crash.

I have seen a parallel situation in retail, with wholesale suppliers of large expensive consumer items (can you guess from my screen name?) cutting wholesale prices to very loss-making levels just to get out from under the expense of warehousing the items.

I don't know if I'm right, but this is the story I tell myself as to how oil prices could have dropped so low, based on supply and demand rather than speculation. The part about the tankers sitting offshore being used as storage is fact. The part about having an oil "fire sale" in response thus explaining the very low prices is my conjecture.

[GRG55]

Re: The elimination of ETFs & ETNs

Instead of addressing your question (because I don't have a good answer.) I would point out that demand for oil has not dropped nearly as much as the price has dropped.

The demand for uranium has not dropped as much as the price dropped from its peak either. Same for a host of other commodities. Commodity pricing behaviour through the ages has not changed. What happened with oil is neither unique to oil, nor is it unique in a historical context.

Blaming speculators is good sport when a scapegoat is needed. Blaming retail speculators [lets face it, ETFs and ETNs are a retail target product] is even more fun. Eliminating ETFs and ETNs will make bugger all difference in the volatility of commodity prices.

Our politicians and regulators would be well advised to remember George Santayana's famous observation:

Those who cannot remember the past are condemned to repeat it.

[*T*]

Re: The elimination of ETFs & ETNs

Great one Metalman!

Yeah, rjwr was channeling metalman...

[cjppjc]

Re: The elimination of ETFs & ETNs

The demand for uranium has not dropped as much as the price dropped from its peak either. Same for a host of other commodities. Commodity pricing behaviour through the ages has not changed. What happened with oil is neither unique to oil, nor is it unique in a historical context.

Blaming speculators is good sport when a scapegoat is needed. Blaming retail speculators [lets face it, ETFs and ETNs are a retail target product] is even more fun. Eliminating ETFs and ETNs will make bugger all difference in the volatility of commodity prices.

Our politicians and regulators would be well advised to remember George Santayana's famous observation:

Those who cannot remember the past are condemned to repeat it.

I'm not sure I understand what you are saying. If this is true.

"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.

Wouldn't the elimination of most if not all speculators in futures markets make for less volitility both on the upside and downside?

[goadam1]

Re: The elimination of ETFs & ETNs

You mean rjwjr I think. And I agree, funny post.

it was a joke. The post was very Metalman

[GRG55]

Re: The elimination of ETFs & ETNs

Wouldn't the elimination of most if not all speculators in futures markets make for less volitility both on the upside and downside?

Nope.

The only way to reduce the volatility would be to return to the days when the majority of global oil was bought and sold directly between a limited number of dominant producers and consumers using fixed price long term contracts. That's about as likely to happen as a GM putting tail fins on the 2010 DeVille.

The elimination of all the speculators would eliminate the futures market. And, in the absence of any other change, would probably increase price volatility.

[Spartacus]

Re: The elimination of ETFs & ETNs

Wouldn't the elimination of most if not all speculators in futures markets make for less volitility both on the upside and downside?

Depends on the dynamics of the ecosystem.

If the speculators all have different theories and pricing models, with trading models based on different analyses and implemented using different data sets, with varying time lags, and so on,

while "interested industrial parties" have a "mono-culture" of theories & models & techniques and biases, then driving out the speculators will increase volatility.

Think of all passengers rushing from one side of the boat to the other at the same time.

If, however, the speculators are monomaniacally or "group-think-ingly" theoretical/analytical, and actual users are the more varied group, then driving speculators out will probably reduce volatility.