Bollitics - Ireland, the Euro and the future of the EU

[CVByrne]

Interesting article, very interesting point on indices. Many financial investors trade indices rather than individual commodities, so the weighting of specific indices is of huge importance on the increase in correlation between commodities.

Indices are heavily traded in leveraged derivatives.

[snowychap]

The graph on the left relates to numbers of contracts on exchanges, doesn't it? (The title says 'Futures and options contracts outstanding on commodity exchanges')

The graph on the right relates to OTC derivatives.

I'm still not sure what position you are arguing, though. Is it just that exchange traded futures haven't had an effect upon the price volatility in commodities markets (though Chapter II section C of that paper gives makes some interesting points as to why it may still do and why the efficient market may be working as efficiently as supposed) but other derivative trading has?

Interesting article, very interesting point on indices.

That's the II C bit about that and momentum trading?

[CVByrne]

I'm just going to bed now, I'll try answer you tomorrow. But the case I'm making is that the emergence of new leveraged derivatives in the past 10 years has increased volatility. Futures have been around for a long time and are not a cause for increased volatility.

[snowychap]

But the case I'm making is that the emergence of new leveraged derivatives in the past 10 years has increased volatility. Futures have been around for a long time and are not a cause for increased volatility.

I think the case that they are making in that particular chapter is that there has been a change in the make up of those futures markets (not just in increased activity but different types of actors, too) and it is this that has had an effect on the volatility; that futures markets may have been a constant but they have not been constant.

[leviramsey]

A huge amount...

Any financial instruments that are used in commodities markets?

There are commodity ETFs (an example would be JJG (actually an ETN), offered by a subsidiary of those lovable folks at Barclays). They've become somewhat popular in recent years as an inflation hedge (perhaps, as a bit of a segue to the topics previously under discussion, due to fears of governments creating excessive amounts of money to cover their "debts"...).

[NOT FINANCIAL ADVICE IN ANY JURISDICTION IN WHICH I AM NOT LICENSED TO DISPENSE FINANCIAL ADVICE... WHICH IS TO SAY ALL OF THEM]

Would personally stay away from these... whilst JJG is at least not leveraged, it's still at core a momentum play (the basic tactic being to buy what's gone up in price and sell what's gone down... this strategy doesn't fall apart most of the time, but it fundamentally boils down to buying high and selling low). I would not be surprised at all to see everybody who buys and holds these instruments (especially the leveraged ones) wiped out within the next year.

[/NOT FINANCIAL ADVICE]

[peterms]

Food prices in the US have risen much more gently than in most other countries (the CPI for food is up 3.2% YoY, in line with the CPI as a whole). The US also has the most developed, highest-participation-by-producers-and-consumers futures markets. Those two facts may well be connected.

Doesn't it also have tighter regulation of commodities trading than the UK? With legal action taken against people who are thought to have tried to manipulate the market, like this example?

[peterms]

Why is gambling on short term price movements any different from gambling on long term price movements?

Short term investors, especially those who short stock, might not care about the long term prospects of the company, but why should they?

From the point of view of the individual speculator who thinks they can make a quick profit from doing nothing that adds value and who care about that more than anything else, there's no reason why they should care about the long term.

From the point of view of the wider economy and society, what you want is a system which supports long-term investment in productive activities which are of social value.

If instead of that we have activity directed into frantic buying and selling of things to make quick profits and get out again, then we have problems like the emergence of bubbles which are probably bigger and more damaging than they would otherwise be, currency speculation, and the kind of transactions which led to the financial collapse. Individual speculators may have done very nicely out of all this, but I don't think we want their selfish interests to outweigh the wider good of the rest of us.

I agree that investment and speculation are not necessarily the best and clearest terms to describe this, but I'm not sure there are better ones in common currency.

[peterms]

Couple of interesting things about wheat, for those interested in the wider discussion of markets, food, and consequences.

Something on how traders manipulate the wheat market to push prices higher to make profit.

Wheat firms are tax cheats (surprise, surprise).

Wheat imports per capita (check how many of the biggest importers have experienced civil unrest lately).

Discussion of impact of wheat prices on Egypt.

[CVByrne]

Peter, Just because some people do things like that doesn't mean all people do. You're generalising a section of people based on a small proportion of them. I can dig up an article on any number of things to point the finger at a section of society for nearly anything.

Changes neet to be made and Regulation needs to be improved in Financial Markets, not the entire system that has evolved being torn down.

[peterms]

Peter, Just because some people do things like that doesn't mean all people do. You're generalising a section of people based on a small proportion of them. I can dig up an article on any number of things to point the finger at a section of society for nearly anything.

Changes neet to be made and Regulation needs to be improved in Financial Markets, not the entire system that has evolved being torn down.

Conor, you may be misunderstanding what I am saying.

If I say for example "Goldman Sachs are a bunch of scumbags" (which I haven't, though they certainly are), what I mean is the controlling and directing minds within that firm, not the person who cleans the toilets. Similarly if I criticise a firm who deliberately creates shortages of essential foods so that people starve, it doesn't mean I am criticising all traders in everything. It's the ones who create havoc that I'm on about.

As for the markets, there are examples of markets working well and less well, but one common theme of the main problems we have had is politicians giving in to lobbying from vested interests to reduce regulation. Another is people devising ways to get round regulation, even where there has been no overt weakening of regulatory power.

To say these things is not to say that a whole system needs to be torn down; but the system needs to show that it can deal with these profound weaknesses, otherwise people will conclude that yes, clearly it is not fit for purpose and must be replaced. That would be a reasonable conclusion, I think.

[CVByrne]

I stand corrected, and agree with pretty much what you've said above. Change is needed and more importantly accountability.

[Awol]

You wouldn't know it from western media but things seem to be going south rapidly in Greece,. So, from the blog world (with the caveat that it might not be true):

The Greek Government has hired Foreign Workers to Clean out the Underground Tunnel Leading from the Parliament to the Sea Port of Piraeus in Preparation for an Evacuation of all MPs

I just became aware of this report from Kontra channel here in Greece. According to this report, a tunnel that leads from Lykavitos to the Greek parliament, and from there to the sea port of Piraeus, is being cleaned out by foreign workers in preparation for the possible evacuation of Greek MP’s in the event of a storming of parliament ahead of wednesday’s vote on the new memorandum.

The situation here is getting completely out of control. I really don’t know how much longer the people will be willing to wait this thing out. The mood here in Athens is one of intense disillusionment with a government that seems increasingly detached from its own people...

And..

Hundreds of thousands of Greek ‘Indignés’ (‘Outraged’) walk out to wage war against their neoliberal persecutors

Two weeks after it started the Greek movement of ‘outraged’ people has the main squares in all cities overflowing with crowds that shout their anger, and makes the Papandreou government and its local and international supporters tremble. It is now more than just a protest movement or even a massive mobilization against austerity measures. It has turned into a genuine popular uprising that is sweeping over the country. An uprising that makes it know at large its refusal to pay for ‘their crisis’ or ‘their debt’ while vomiting the two big neoliberal parties, if not the whole political world in complete disarray.

How many were there on Syntagma square (Constitution square) in the centre of Athens, just in front of the Parliament building on Sunday 5 June 2011? Difficult to say since one of the characteristic features of such popular gatherings is that there is no key event (speech or concert) and that people come and go. But according to people in charge of the Athens underground, who know how to assess the numbers of passengers, there were at least 250,000 people converging on Syntagma on that memorable night! Actually several hundreds of thousands of people if we add the ‘historic’ gatherings that took place on the main squares of other Greek cities (see map).

At this juncture we should however raise the question: how can such a mass movement that is shaking the Greek government (in which the EU has a particular interest) not be mentioned at all in Western medias? For these first twelve days there was virtually not a word, not an image of those unprecedented crowds shouting their anger against the IMF, the European Commission, the ‘Troika’ (IMF, European Commission, and European Central Bank), and against Frau Merkel and the international neoliberal leaders. Nothing. Except occasionally a few lines about ‘hundreds of demonstrators’ in the streets of Athens, after a call by the Greek trade unions. This testifies to a strange predilection for scrawny demos of TU bureaucrats while a few hundred yards further huge crowds were demonstrating late into the night for days and weeks on end.

This is indeed a new form of censorship. A well-organized political censorship motivated by the fear this Greek movement might contaminate the rest of Europe! Confronted as we are with this new weapon used by the Holy Alliance of modern times, we have to respond together both to expose this scandal and to find ways of circumventing such prohibition to inform public opinions, through developing communication among social movements throughout Europe and at once creating and reinforcing our own alternative media…

My betting is that if (when) this all comes tumbling down then the end will come in hours and days rather than weeks and months. Clearly the BBC, Sky et al are under orders not to get the masses fired up by the 'radical' example of euro neighbours...

[peterms]

The tunnel sounds implausible, but fun.

Michael Hudson is good on the developing crisis.

The ECB seems to be pushing harder for massive privatisation. They must think the armed forces will be able to crush dissent. It would be more sensible to backpedal like Cameron. Looks like it's all going to get very interesting.

[Awol]

They must think the armed forces will be able to crush dissent.

Christ, the last time they had a good showing was Thermopylae. Greece isn't Syria and the conscript squaddies are unlikely to go postal on their own.

[peterms]

They must think the armed forces will be able to crush dissent.

Christ, the last time they had a good showing was Thermopylae. Greece isn't Syria and the conscript squaddies are unlikely to go postal on their own.

Their last military coup, followed by torture and murder of political opponents among their own people, is within the lifetime of many Greeks - 1967. It's not so different to what Syria is doing now.

There will be people thinking along these lines again, like there was in the UK in the 70s, when we had a cabal of ex-forces mentalists planning a coup.

The conscript squaddies will do as they're told.

[Gringo]

Clearly the BBC, Sky et al are under orders not to get the masses fired up by the 'radical' example of euro neighbours...

Unlike the protests in all main towns and cities across Spain - that gets a least a paragraph every other day in either the indie or the grauniad.

[peterms]

Something on the Beeb website now: Greek strikers hurl yoghurt and stones at Athens police.

Is this the first reported incidence of yogurt being used as a weapon?

And will it undermine the peace-loving reputation of yogurt-knitters everywhere?

[snowychap]

Don't worry. No one really cares until it's happening to them.

From the reports, Greece is crumbling regardless of the fact that Papandreou managed to defeat the no confidence vote.

Beeb report has the poor with little immediate future selling what little gold they can at booths and (tie it in with) those with cash buying gold with what money they have.

[Awol]

Anyone else notice Jack Straw's recent gem that the euro needs to be put out of its misery quickly, rather than "die a slow lingering death"?

[Gringo]

Economic commentator on R$ today this morning saying how much worse the crisis would have been if europe had had to deal with 17 differenet currencies during the crisis and that the euro had actually enhanced economic management capabilities.

It's amazing that in these difficult times such fools can still find employment.