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Portfolio > Alternative Investments > Commodities

Speculators -- Victims or vultures?

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Both presidential candidates would have you believe speculators are an evil, sub-human form of life coming to eat your children. The facts, regardless of the scapegoating and demagoguery, tell a different story. Another less-loaded word for speculator is simply “trader;” granted, one that makes bets on the direction of the market. They trade commodities contracts today to lock in a future price as a hedge against volatility. Some bet on a rise in prices, others on a fall. Someone explain to me how this, absent simple supply/demand issues from China and India, a lack of domestic refining capacity and a moratorium on offshore and arctic drilling, is the driving force in higher commodities prices? According to the Wall Street Journal, McCain calls such trading “reckless wagering.” Obama calls it market manipulation by “a few energy lobbyists and speculators.” But traders in the secondary market provide liquidity. And as the paper notes, without this secondary group, “futures markets would be determined exclusively by commercial participants. Another word for this is a cartel.”

Look, I’m not na?ve. I understand it’s an election year, and politicians have sought to deflect blame and demonize easy targets ever since … well, since there were first politicians. But this is hardly the change we were promised from Obama, or the straight talk from McCain.


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