Monday, September 22, 2008

Dynamite Economy 3.12 Approach – Essential Commodities

Solvere, Cognose LIM Swee Keng (Sep 22, 2008)
http://www.cts-ideas.com/ tab Cognose.blogspot.com
Dynamite Economy 3 - Deadly Urgency
3.12 Approach – Essential Commodities

The values of commodities cannot multiply over a short span of months, yet their prices did.

This is only possible because Prices detached from Real Values.

If we examine carefully, deeper, it becomes clear that the real supply and demand of commodities, especially with immense stockpile by nations, cannot swing violently within short period, yet the prices of energy, metals, grains etc commodities did.

This is only possible because Purchases independent from Actual Demand.

Demand cannot swing so much. Other than those resources really need for real operations, who would purchase something higher than its real values?

Speculations - especially those who are well endowed with OAW, who found no place to park their liquidity will speculate, were speculating.

It is because after the injection of well governed sovereign wealth into free private hands, the scale of OAW available for trading in commodity market is multiplied, become significant, adequate to SIGNIFICANTLY INFLUENCE prices, faster, more effective, effective in inflicting bigger effects, unprecedented swings these are witnessed only after governments dispensed huge sum to intervened in Sub-primes.[1]

The whole world is tightly connected, integrated.
If commodities need to be physically transacted-delivered, the price would not swing so violently.
Commodity traders in fact devised futures, on top of other instruments, to facilitate immediate, easy, many unwarranted, transactions.

The operations of such markets, are they essential to Free Market operations, Free Market objectives?
If free market means the linkage of suppliers and consumers in the most effective, efficient manner -
Does these markets improve efficiency, or hinder transactions, multiply agency cost?
This hurts the real suppliers, the real consumers, which eventually passed on the losses to the economy.
This is agencies theory, but in this case, the agents are performing transactions without real supply nor actual demand.

They are not even agents, merely interfering parties who has no interest in the real commodities.


There will be no urgencies for governments to intervene, if the impact is small, short-lived.
But the impacts become real, severe, stark.
if all traders are likely to make great profit
The inertia to accept change, regulation will be formidable

But with such gloomy economy, without recovery insight
would traders not want to bail out?

From governments, international regulatory bodies
it is the best window to get the support of traders!!


[1] Sep 16, AIG, the biggest Insurance Group declared great losses, price drop from US$79 a year ago to $1.25. Not a world renowned tycoon, Oei Hong Leong bought 1 million share. The Fed gave a US$85b loan. The price escalated to $3.75 end of same day. Oei could easily move into his Free Private Hand more than double his original.

How much money moved from Well Governed Sovereign Fund actually help the economy?
Oei donated the shares to LKY School of Public Policy
This also demonstrated that market move with expectation than real impact manifested!

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