There was intraday commentary
here that included an interesting world perspective from the audacious oligarchy and their enablers amongst the 'one percent.'
And there was another about the current state of political discussion in Britain, a recent awkwardly stated reflection by the Prime Minister on the mindset of their powerful, and its possible relationship with the continuum of politics and 'statism'
here.
Oddly enough, both seem to have some implications for another question that was raised by a reader who shared this from another site. It was in reference to a posting here that showed that the number of potential claims on actual available gold at the Comex was back to a record high.
And it is further related to a familiar theme about the relationship between a thing masquerading as a market, The Bucket Shop on the Hudson, and THE marketplace for precious metals in Asia and the Mideast.
"It is not meaningful that there are 107.7 claims per registered ounce, you should consider that the ratio between paper SPY and real SPY is infinity.
You are making the fundamentally flawed assumption that you need a physical commodity to determine price. You do not.
It doesn’t matter how many physical ounces there are per claim. It can be 1 or 1000 or 107.7 or infinity and it simply doesn’t matter.
The purpose of commodity markets is not to trade commodities, it is to determine price. There are zero SPY physical contracts and the market works just fine.>
I was a commodities broker and part of the test is to ask the function of commodity markets. Every commodity broker understands you don’t need a physical product.
It’s not a broken system, it’s existed in one form or another for a longer time than currency in any form. But to use it you have to understand it and you do not.
Everyone who owns physical gold or silver bought it with paper. There is no difference, they are fungible. The only difference is the price you are willing to take or to give. Physical and paper are exactly the same.
Saying that financial markets are manipulated is about as meaningful as saying the sun rises in the East. Well, duh?"
What this person is saying is that price really has nothing to do with actual supply and actual demand for a physical thing. And much worse, they seem to have a remarkable disregard for risk and leverage. I was originally going to ignore this since it smelled like teen spirit. But when they came back and announced their expertise, how could I resist using this as an occasion of some education.
Futures are derivatives, bets. They are wagers that are indicative of where professionals think that price is going, given a set of known and unknown factors with certain assumptions. Among other things, like gaming the system.
These types of futures markets began as a means for people who actually used and supplied things like commodities to factor in the risk in the 'future' and to essentially spread the risk around.
The 'futures market' is not the market. No derivatives market is the market. It is a reflection of THE market that varies in its quality and efficiency.
A derivatives market is a creature of risk arbitrage, and leverage, and it is a usual indicator of price to the extent that risk is correctly perceived and priced and these exchanges are REGULATED against the short term gaming that speculators are often wont to do.
I really do not blame the guy who thinks these things in his statements above since he knows what he has been taught. And these days the notion that the paper markets can set prices as they will without regard to risk or leverage is a not uncommon concept, in the pursuit of unearned wealth.
It is at the heart of some interpretations of Modern Monetary Theory that enthrones the principle of fiat in determining value above all other considerations of the willingness of actors in the actual market to accept it at a stated value. At its worst it is a reflection of a kind of statism. This flawed assumption is the basis of every black market and currency crisis in history.
Commodities are different than stocks, because a stock is itself is a derivative wager, a share in the future profits, dividends, and losses of a company. How can any broker fail to know that? Pretty basic stuff. That is the difference between buying bullion and a mining stock.
Commodities are by definition a real thing, and are not totally fungible with paper money at any and all times. I think this is the MF Global school of thought of late. And it is nonsense to think that paper can paper over any action or any excess, except in a nation of willful thugs.
If you believe in the pricing of things without reference to supply, demand, time, and risk, I invite you to go for a very long and solitary walk into the Sahara Desert, with only the price of a couple of gallons of water and a hotel room in New York in paper dollars in your pocket.
Enjoy the refreshing and thirst quenching crunch of paper and sand.
It is in a broken system in which these types of wagers can set price without reference to a realistic set of expectation based on supply, demand, leverage, and risks. Leverage is a component of risk, but given the state of things, I feel the need to call it out separately since it seems to be fashionable now amongst 'market professionals to believe that leverage is irrelevant to the point of infinity.
Such a self-referential system does not properly allocate capital for future investment in supply. It does not inform the planners of changes in consumer interest, and the state of their own needs and condition. It does not give consumers the surety that they can actually obtain what they need and when they need it, and not be forced to accept some substitute at a dictated 'price.'
The financial markets are an enabler, and not an end unto themselves. And when they lose their proper place in the bigger scheme of economic things where the real markets exist because of the moral hazards of an outsized and over-leveraged financial sector, then we know that at some point there will be hell to play in the real world.
We seem to be relearning that lesson about every seven or eight years these days. And until the consequences of their actions are visited on these infantile like masters of the universe, I suspect we will have to keep relearning them.
This is the point to which the sophists of finance have brought us, for any variety of motives. I don't really care to discuss it any further. If you don't get it by now, you won't until we hit the wall again, and you are desperately searching through the rubble for your face.
