Quote Originally Posted by maladroit
"Speculation raises prices; not lower it."

- speculation does both...speculators can profit from lower stocks and prices by selling short or betting on the futures markets
I think you misunderstand what speculation is. Here is an excerpt from the book by Benjamin Graham "The Intelligent Investor"

Chapter 1, page 20:

" The distinction between investment and speculation in common stock has always been a useful one and it's disappearance is cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all it's dealings with the public. Otherwise stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properl warned against. Ironically, once more, much of the recent financial embarassment of some stock-exchange firms seem to have come from the incusion of speculative common stocks in their own capial funds. We trust that the reader of this book will gain a reasonably clear idea of the risks that are inherent in common-stock commitments=risks which are inseparable from the opportunities of profit that they offer, and both of which must be allowed in for the investor's calculations.

What we have just said indicates that there may no longer be such a thing as a simon-pure investment policy comprising representative cmmon stocks- in the sense that one can always wait to buy them at a price that involves no risk of a market or "quotational" loss large enough to be disuieting. In most periods the investor must recognize the existence of a speculative factor i his common-stock holdings. It is his task to keep this component within minor limits and to be prepared financially and psychologically for adverse results that may be of short or long duration.

Two paragraphs should be added about stock speculation per se, as distinguised from the speculative component now inherent in the most representative common stocks. Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many common stock situations there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone.* There is intelligent speculation s speculation may be unintelligent. Of these foremost are: (1) speculating when you think you are investing; (2) specuating seriously instead as a pastime, whe you lack proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose.







*Speculation is beneficial on two levels: First without speculation, untested new companies (like Amazon.com or in earlier times, the edison electric light co.) would never be able to raise thenecessary capital for expansion. The auring, long-shot change of a huge gain is the grease that lubricates the machinery of innovation. Secondly, risk is exchanged (but never eliminated) every time a stock is bought or sold. The buyer purchases the primary risk that this stock may go down. Meanwhile, the seller still retains a residual risk-the chance that the stock he sold may go up!"

Now then with all that said and typed up we have an understanding what speculators and speculative trading is. A place such as oil futures doesn't need MUCH speculative trading because it is a proven market. It is the life blood of the world economy. However when you get people speculating what they THINK oil will cost and people buying at that rate then you seriously inhibit future buying power.

So again, speculative trading drove the price up... with talks of other countries increasing production from 50k upwards of 200k more barrels a day.. the increase of future supply went up.. and therefore stocks traded at a more reasonable value. Perhaps you don't recall the drop in the price of oil when saudi arabia announced it would be increasing production. It further dropped when other nations also announced they would be increasing production.

Then in light of the economic downturn globally india and china reduced their number and the barrell of oil went down even further due to the increase global surplus of oil.

Really it's not that difficult to understand.


"I could've sworn that the trending was directly inline with china and india both consuming less oil in combination with the US. The price of oil has come down because of less demand."

- there wasn't 600% more demand between 2003 when oil was under $25 a barrel and 2008 when oil was $150 a barrel, and there hasn't been a 50% reduction in demand since july...supply and demand are factors but speculation is a greater factor
Really? So what were India and China doing when there was a spike in the amount of oil they were importing? Oil usage is effected on a global scale and is not local to just the United States. And there has been a significant reduction in oil since July.

I am not sure where you're getting your information from but it's just flat out wrong.

"
If hiring comes to a halt demand will drop off."

- if job creation comes to a halt, and the population remains constant, demand should be relatively stable because employment levels will be the same (barring other economic factors)


"I've already explained how lowering taxes would achieve the same if not better results."

- it didn't work for ronald reagan or george bush...that theory is based on the laffer curve...at some point, the reduction in taxes will have a negative effect...in george bush's case, the expansion of the economy had more to do with low interest rates and the real estate bubble...tax cuts and stimulus checks failed to save america from that disaster so i don't expect more tax cuts will work either...both obama and mccain are going to add trillions to the national debt while leaving the unfunded liabilities in medicaid and social security for another president's crisis management team...the longer that debt is put aside, the worse the correction is going to be
Really? During Ronald Reagan's era he created approximately 20 million new jobs and pulled the economy from the dead hole it was in from the Carter administration.

In George Bush's case, and Bill Clinton has even admitted this, he was entering an economic downturn partly to blame for the dot com bubble bursting. The housing market was still hot and going; however it was only going on strong due to sub par lending practices that were leveraged against financial institutions from the Clinton Administration. Something also that Clinton admits to.

You are confused on what our current down turn resulted from.


Laffer Curve
uhh.. did you really read what is said on there? It is not much different from what I've been saying in regards to taxes.

Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve:

Laffer Curve

The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.

"if a producer has a demand for 200 sodas at 99 cents a pop but wants to sell it at 1.25 then he would reduce supply to reflect the price at which he wants to sell it."

- in the real world, that isn't how soda or oil is priced:
Oil speculators 'riding roughshod' over OPEC, say analysts
Did you even read this article? It touches briefly on pricing but doesn't actually explain how oil is priced.

here are a few excerpts placed in bold from that link:

OPEC's move to keep oil output unchanged was a message to the market that crude supplies are sufficient, a view not shared by speculators who pushed the price of crude to fresh record highs on Thursday, analysts said.

The Organisation of Petroleum Exporting Countries, which produces 40 percent of the world's oil, decided at an output policy meeting on Wednesday in Vienna to maintain its daily crude production target of 29.67 million barrels.

Following the decision, the price of New York crude rose to new all-time highs, reaching more than 105 dollars per barrel on Thursday.

"Prices surged in the fallout from what was an absolute hysterical reaction to OPEC's decision" and news that US crude inventories had fallen last week, said the Schork Report, which provides analysis of energy markets.

"Thus, when OPEC tells us the (oil supply and demand) fundamentals have decoupled from prices and the speculators are running roughshod over the futures market, they have a point," it added.

OPEC on Wednesday blamed the high cost of crude on speculative buying as investors sought a haven amid a weak dollar and high inflation.

"You get the feeling that even if OPEC had announced a production increase the market was still going to move higher," said the Schork Report.

"So let this be a lesson (to OPEC). When you tell the market you lost control of the pricing mechanism, then the market is going to assume that mechanism in your place," it added.

OPEC, which comprises 13 member countries including Saudi Arabia, the world's biggest producer of crude, said in a statement Wednesday that the market was "well-supplied, with current commercial oil stocks standing above their five-year average".

But US President George W. Bush was said to be "disappointed" that the cartel chose not to increase output.

"He is disappointed that they decided not to increase production," White House spokeswoman Dana Perino said.

Bush "does not think it's a good idea for their biggest customers, such as the United States, to have an economic slowdown, in part because of high gas (gasoline or petrol) prices.

"We know that there is high global demand and there is tighter supply. So what we would like is to see an increase in supply from OPEC," Perino added.

The price of oil has doubled since the start of 2007, driven in large part by soaring demand for crude from emerging economic powers China and India.

Speculators have latched onto this, as well as diplomatic friction or unrest affecting oil producing countries such as Iran and Nigeria.

"The fundamentals are still miles away from providing a clear justification for the current price level," Petromatrix analyst Olivier Jakob said following OPEC's latest output decision.

The International Energy Agency, an official energy watchdog for oil-consuming countries, criticised the cartel's move to leave its production unchanged and urged OPEC to take note of high crude prices.

"The decision by the Organisation of Petroleum Exporting Countries to leave output unchanged may allow crude stocks to rebuild ... but high prices are sending a strong signal that the market thinks it is not enough," IEA said in a statement.

The Paris-based organisation added: "We may need more oil before the summer and therefore urge OPEC countries to listen to market signals."

So this article seems to be in line with the definition of supply and demand.. which you provided to me in hopes of proving me wrong... only for it to further prove me right.. then you post this article on OPEC to prove me wrong only for it to fall back to the basics of supply and demand.. which is what I originally stated.. again further solidifying my point.

What is it again that you're trying to prove? Are you arguing against me for the sake of arguing? At this point it seems like you don't understand what you're talking about. Or maybe I'm misunderstanding what you're trying to say; although I doubt it.