Cafe Hayek - Latest Comments in A Win-Win

Re: A Win-Win

vikingvista — Tue, 30 Nov 1999 02:00:00 -0000

All traders are speculators, since nobody knows the future.

We should be thanking those whom BHO criticizes, since those are the guys working hard to get us a workable price, and they are doing so on their own dime.

For those who don't think this is a great value for our nation, we can see what happens when we leave price determinations to government geniuses--it was called the Soviet Union. It is gone now.

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

Yeah right... because the price and value of financial derivatives based on oil futures traded opaquely is obvious to all

Well, looky here. It did blow out his last brain cell.

Futures ARE derivatives. Oil futures are heavily regulated, traded on exchanges, very liquid and extremely transparent.

Good to see that you come to your decisions based on not even the most slippery grasp of facts. You have earned the title "Village Idiot". Take a bow.

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

Vikingvista,

I completely agree. The market is more rigged now than I have ever seen it in my career. Insiders (market makers) are, of course, exempt from the restrictive rules because they are required to provide a two sided market at all times. Thus, the only thing regulation does is determine who can sell and when and thus, who wins and who loses. This has obvious price implications for price and volatility as fewer people can sell than can buy and is most pronounced in medium to low liquidity securities.

However, regulation doesn't always trend toward more restrictions. In the last three years, regulations that tilt the playing field toward insiders at the expense of customers have been removed. For instance, portfolio margin was introduced in early 2007 and allows 6 to 1 leverage as opposed to 2 to 1 Reg -T leverage for accounts over $100K. The price test for shorting was removed in July 2007, driving down spreads and improving liquidity and reducing volatility in low to medium liquidity stocks. Exchanges that didn't allow customers to post both a bid and an offer have closed (notably, the tragic AMEX). All of this improved the environment for non-market makers while squeezing market making profits through increased competition. Of course the regulatory trajectory changed when the bubble burst.

It's telling how many hedge funds and former customer firms have become broker dealers/market makers since the SEC has made it clear that rents will be created for insiders at the expense of customers.

Re: A Win-Win

muirgeo — Tue, 30 Nov 1999 02:00:00 -0000

I thought an object's value was what someone was willing to pay for it.

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

Posted by: JohnK

Yeah right... because the price and value of financial derivatives based on oil futures traded opaquely is obvious to all. That's why we fill our 401K's up with them.

As Nassim Taleb is on record stating these complex products exist for Ponzi scheme construction and stealing of wealth from the productive society.

Futures on oil ...sure. Derivatives on futures ... snake oil.

If you guys are OK with such schemes then I don't see why you have a problem with people using government thugs to get them their share of the pie... because with you all apparently everything is fair game.

Again... it goes back to my claim that based on your "principles" its unnatural to sperate out wealth and power grabs obtained by the anything goes rules of the market from wealth and power obtained using political menas... in fact the two are so intricately wound together there IS no separating them.

Re: A Win-Win

vikingvista — Tue, 30 Nov 1999 02:00:00 -0000

"Lots of things play a role in the creation of bubbles - notably, the inability or difficulty to short."

A great point.

The broader issue is that regulation of the stock market is politicized. Politicians see their political fortunes tied in part to stock market performance, so fiscal, and even monetary, policy are incentivised to generate a ratcheting regulatory system (like impeding short selling) that will tend to inflate market prices.

And when market participants eventually recognize the phony value, the market dramatically corrects and the government adds more ratcheting mechanisms and...

Well, you know the drill.

Re: A Win-Win

LowcountryJoe — Tue, 30 Nov 1999 02:00:00 -0000

>>As usual, you are deeply misunderstood on this site.<<

Not by all. I have what I feel to be a firm understanding of the guy.

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

Daniel,

As usual, you are deeply misunderstood on this site. Lots of things play a role in the creation of bubbles - notably, the inability or difficulty to short. Also, difficulty in assessing the future and illiquidity. Yes, a lack of liquidity does not quell speculation, it merely makes the price moves more vicious. The internet bubble was difficult to assess because nobody knew if we were looking at a technology that deserved a multiple similar to what we retrospectively know should have been assigned to computers and TVs in the early days or if the multiples should have been much lower. In other words, where we have fat tailed distributions, bubbles are more likely to form.

Speculation may play a role in bubbles, but the more speculators and the more unimpeded they are, the smaller the bubble is and the faster it pops. Note how quickly the oil price came down last year when it became clear that the fundamentals weren't there to support such a high price. Since the market is liquid you were able to sell out of your oil position at $145, 144,143,142, 141, etc. instead of selling a bit at $144 with the next bid at $135 and then at $125. That's the difference between a liquid market and an illiquid one and liquidity is dependent on the number of participants.

Danny, one more thing...when I need advice about behaviour from a boy half my age, you'll be the first to know. I know that in your 25 years you believe that you've become filled with what you think is great wisdom, but others may not always agree. Stick to the economics, dear.

Re: A Win-Win

brotio — Tue, 30 Nov 1999 02:00:00 -0000

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

Posted by: JohnK

Yeah right... - Yasafi

Note that in Yasafi's reply to the question posed by JohnK, there was not an answer to the question.

Again.

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

LCJ, you are too funny.

S. Andrews, I had to stop reading after

"Messianic philosopher of the unknown,...". Nothing good could come from a reporter whose opening line is that stupid. I read Taleb years ago and I basically didn't disagree with him often. Until recently. This little hiccup has catapulted him to a status he does not deserve. He's not a great trader and he foresaw nothing. He bled his hedge fund dry, closed it, and then took enormous credit for the ho hum returns his protege scraped up last year buying teeny options. Many traders delivered high returns with low volatility in all kinds of markets for years. Last year alone, several equity options firms returned over 100% after years of 30% and 40% returns. Unlike Taleb, they won't take investment from the public and have no need to be publicity hogs, pushing their own central planning agenda. Taleb is dying to be just like his man-crush, George Soros.

Re: A Win-Win

Daniel Kuehn — Tue, 30 Nov 1999 02:00:00 -0000

Methinks -

I think you misunderstand me twice. First, I know why speculation CAN create stability. Why do you think I'm supportive of speculation, after all! I'm a bit fuzzy on why it GUARANTEES stability. If you buy the basic Minsky story speculation plays a big role in the origin of bubbles, which are the most violent and serious instances of instability. So yes, added liquidity acts in one direction but adding liquidity isn't all that speculation does, so I see no reason to believe speculation guarantees stability.

Your second (implicit) misunderstanding is that I might know why you might care about what I think about the basic deceny of not calling people village idiots. I don't.

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

It's quite possible many have thought this about you in the past, but were gentlemanly enough not to voice the opinion.

I care what you think about this because...?

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

That doesn't necessarily guarantee stability, though. Why should it???

Because it increases liquidity. Increased liquidity makes prices more stable than they otherwise would be. This is why the standard deviation of price in thinly traded securities is greater than in more liquid securities and why the price moves are sharper and deviations from fair value happen more frequently and are more pronounced.

Re: A Win-Win

Daniel Kuehn — Tue, 30 Nov 1999 02:00:00 -0000

muirgeo -

RE: "Then you assume these are market prices and you blithfully purchase gas from the cheapest station asuming the market mechanism is in tack while in fatcs your paying surcharges and taxes to wealthy rip off artist and people on top. They control you to the point that you actually defend their theft from you. It's a good gig. I give thenm credit."

Let's not make the old mistake of confusing "markets" with "competitive markets". There are real issues associated with markets that aren't completely "competitive"... but that doesn't automatically make them suspect.

Methinks -

RE: "If that were true, they would be encouraging more speculation. "They" are either disingenuous or stupid. "

I'm not so sure about that. I'm fine with speculation (I'm not sure about "encouraging" it, but I'm completely comfortable with it). That doesn't necessarily guarantee stability, though. Why should it???

RE: "I think that blew the village idiot's last remaining brain cell."

It's quite possible many have thought this about you in the past, but were gentlemanly enough not to voice the opinion.

Re: A Win-Win

dano — Tue, 30 Nov 1999 02:00:00 -0000

"Then you assume these are market prices and you blithfully (sic)purchase gas from the cheapest station asuming the market mechanism is in tack while in fatcs (sic) your paying surcharges and taxes to wealthy rip off artist and people on top ." Muirgeo

Is this the first time that Muirgeo recognizes that taxes are a rip-off?

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

I think that blew the village idiot's last remaining brain cell.

Re: A Win-Win

JohnK — Tue, 30 Nov 1999 02:00:00 -0000

You are the ones making excuses for profiteers who work by obsfucating price,demand and supply mechanisms. Allowing only insiders to know the real quantities and values.

I thought an object's value was what someone was willing to pay for it.

If it costs me five dollars to produce something, and someone else is willing to pay a hundred dollars for it, is it worth five dollars or a hundred dollars?

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

they're concerned about the impact of fluctuating prices on consumers that don't hedge or by futures - they just buy the gas.

If that were true, they would be encouraging more speculation. "They" are either disingenuous or stupid.

I wonder if Muirgeo gets his medical information from "Rolling Stone."

Judging by his spew here, he's getting it from "Hilights".

Re: A Win-Win

muirgeo — Tue, 30 Nov 1999 02:00:00 -0000

The impression I get from muirgeo and his fellow anti-Capitalist statists is that they sees profit as theft, and the government rights that wrong through progressive taxation and wealth redistribution.

Posted by: John

I am not the anti-capitalist here. You are the ones making excuses for profiteers who work by obsfucating price,demand and supply mechanisms. Allowing only insiders to know the real quantities and values.

Then you assume these are market prices and you blithfully purchase gas from the cheapest station asuming the market mechanism is in tack while in fatcs your paying surcharges and taxes to wealthy rip off artist and people on top. They control you to the point that you actually defend their theft from you. It's a good gig. I give thenm credit.

Re: A Win-Win

John — Tue, 30 Nov 1999 02:00:00 -0000

How is profit theft? How does that argument work? I'm not sure I've heard it.

I think the argument goes something like - I work for the evil profiteer who earns money off my labor. I am paid a fraction of what I produce, and the evil profiteer pockets the difference. So that evil profiteer is stealing from the sweat of my brow, and it is the duty of the government to seize those ill gotten gains and distribute them fairly and equitably.

Mind you I'm neither putting forth this argument nor saying that it is what you believe, but I'm pretty sure muirgeo believes it.

That's the only way I can see to rationalize government theft as a good thing.

Two wrongs make a right (assuming profit is theft and thus wrong).

Re: A Win-Win

Rafi — Tue, 30 Nov 1999 02:00:00 -0000

"selling oil short when its price is rising adds supply to the market today"

Could somebody explain this?

_____

Sure. If you sell oil at $60 today, theoretically some refinery or manufacturer purchased it from you at that price. They will refine the crude oil into gasoline, and eventually it will make its way to the pump. If you sell oil at $70, the refiner has to charge more and eventually that charge will show up at the pump. So if Obama comes in and starts selling right now, even though the price is rising (which it isn't) he is adding more supply to the market at the current price - before it rises.

Put more simply: if they come in selling it is an opposite force on the buying pressure, which will add supply and hold prices down.

Re: A Win-Win

Daniel Kuehn — Tue, 30 Nov 1999 02:00:00 -0000

Mr. Winston -

re: "If you don't like how the price of oil and gas fluctuates, then hedge it. "

I don't share the mania about regulating speculators or even any real concern about speculation at all... but I would counter this statement by pointing out that the issue people are concerned about isn't the impact of fluctuating prices on commomdity traders - they're concerned about the impact of fluctuating prices on consumers that don't hedge or by futures - they just buy the gas.

Re: A Win-Win

Methinks — Tue, 30 Nov 1999 02:00:00 -0000

"selling oil short when its price is rising adds supply to the market today"

Could somebody explain this?

One sells oil short by selling a futures contract (a promise to deliver a certain amount of the commodity at a certain price on a certain date). Thus, selling a futures contract is a supply promise.

We can get into more detail if you want, but that's the basic gist.

Re: A Win-Win

Mr. Winston — Tue, 30 Nov 1999 02:00:00 -0000

Our benevolent dictator forgets that higher oil prices = reduced global warming.

If you don't like how the price of oil and gas fluctuates, then hedge it.

Re: A Win-Win

Daniel Kuehn — Tue, 30 Nov 1999 02:00:00 -0000

John -

RE: "The impression I get from muirgeo and his fellow anti-Capitalist statists is that they sees profit as theft, and the government rights that wrong through progressive taxation and wealth redistribution."

How is profit theft? How does that argument work? I'm not sure I've heard it.

Re: A Win-Win

John — Tue, 30 Nov 1999 02:00:00 -0000

What amazes me on this site is how many people with views contrary to those of the many on this site not only accept the theft but actually advocate for more of it.