LQD: Matt Taibbi shreds Goldman Sachs excuses | 16 comments (16 topical, editorial, 0 hidden)

I still disagree on the oil and carbon bubbles (4.00 / 3)

The oil price increase was not a bubble - Goldman Sachs certainly rode the price increases profitably, but oil prices did not just increase because of speculators, which, for long period in that bull phase were betting on a price fall. No, fundamentally oil prices rose really high because we moved from a supply-driven price to a demand-driven price, and prices had to go up high enough to force people to use less in the few places that were actually subject to full price variations, mainly the US and, to a lesser extent, Europe (because high taxes and the euro softened the variations in gas prices). When demand crashed (whether because of oil prices or because the financial crisis had turned into an economic one, or both), prices went back to supply-driven basis, ie much lower.

And carbon trading is not a bubble: the system is not bad per se, it's just been distorted by too-high allocations to industry (not to Goldmans), a problem of traditional corporate lobbying rather than evil capture of government by Goldmans.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Jul 9th, 2009 at 11:58:46 AM EST

Re: Really? (4.00 / 4)

Re oil, the debate continues.

I would be interested in your view on what this guy has to say....

Abstract
This article is an updated version of an article that was published in Seeking Alpha. I have updated and clarified certain definitions. The relevance of that article in todays' Market justify this updated publication.
The commodities we are concerned with here are those with potentially very low storage costs. Minerals, when kept in the ground, have a storage cost next to zero.
I observed a strong link between the evolution of the market price of minerals and the shape of the yield curve.
The slope of the yield curve indicates the fair valuation or not of the price of short-term assets compared to long-term assets.
I am going to show that the shape of the yield curve is a first order parameter of the evolution of the price of minerals.
When the yield curve is inverted, because of profit maximization, Miners & Drillers prefer hoarding a higher proportion of their minerals in the ground (their preferred short-term assets) rather than extracting them and investing the proceeds in long-term instruments. Hence, the marginal cost of extraction of minerals becomes irrelevant to their market price as miners stop maximizing their output under the constraint: Market Price - Their Marginal Cost of Extraction.

My instinct is that he has put his finger on something. You are much more clued up than me: what do you think?

Re carbon trading, IMHO it's one of those things that works in theory but not in practice. It's probably the biggest boondoggle since the Millennium Bug: promoted by middlemen and consultants, for the benefit of middlemen and consultants.

Totally impractical. I just got back from speaking at a conference in Bristol. The guy from Defra (relevant UK government department) was basically saying that no one has a clue how Carbon Reduction Commitments are going to work - all help gratefully received...

....oh dear.

Why monetise something worthless, like CO2, when you can monetise energy value quite straightforwardly?

FT Alphaville

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jul 10th, 2009 at 06:15:20 PM EST
[ Parent ]

Re: Really? (4.00 / 5)

Why monetise something worthless, like CO2,

The exchange platform for credits and offsets is a fraud legitmated by government monopoly. Participants assume no liability by issue or trade of such securities --certificates that represent interest in a rated reduction or promise to reduce CO₂ emissions purportedly by means of plant, equipment, foregone energy intensive activities, ownership interest in third-party foregone energy consumption, or all of the above. And apart from inadequate regulatory metrics and practice, we find the "face value" (cash value of maximum emission volume) assigned such instruments is not legally binding in each of the jurisdictions where exchanges are established. In short contracts implying buyer's promise to extinguish CO₂ production are not executable.

More to the point of your citation, the frequency with which participants plow back rather than hold or distribute proceeds obtained by sale of credits and offsets is predictably low, because the security per se, not the underlying "asset" CO₂, is a store of value and fungible. More plausible (analogous to buy-back behavior exhibited over the past decade), transnational holding companies may use proceeds to purchase properties (e.g. subsidiary entities and real estate) to hedge the price of credits held and credits available for sale.

The purpose of the exchange is to introduce an additional source of liquidity to existing primary and secondary money markets.

when you can monetise energy value quite straightforwardly?

You know the answer is simple enough: Producers do not voluntarily reliquish profit, and no government requires they must.

Diversity is the key to economic and political evolution.

by Cat on Sat Jul 11th, 2009 at 09:27:41 AM EST
[ Parent ]

Re: I still disagree on the oil and carbon bubbles (none / 1)

Re: oil bubble/not-bubble,

Is the difference between supply- and demand-driven prices really $120/bl?

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sat Jul 11th, 2009 at 09:59:58 AM EST
[ Parent ]

Re: I still disagree on the oil and carbon bubbles (4.00 / 5)

The best proxy I know for "supply and demand" in the oil market is spare capacity:

(source: my diary OPEC blames speculation from July 2nd, 2008)

Is it possible that oil demand is so inelastic to explain a factor of 4 from peak to trough? ($145 to $35/bbl)

Do people know where to find an up-to-date production capacity/output chart, and a good price series? Then we can see how much of the price variation is explained by spare capacity per capita...

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Carrie (migeru at eurotrib dot com) on Sat Jul 11th, 2009 at 10:24:18 AM EST
[ Parent ]

LQD: Matt Taibbi shreds Goldman Sachs excuses | 16 comments (16 topical, 0 editorial, 0 hidden)

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