To: UncleBigs who wrote (58538 ) 4/18/2006 3:44:21 PM From: bond_bubble Read Replies (1) | Respond to Your assumption is that, producers fear that prices will fall - and hence dump it into the market as soon as they see price rise!! Your assumption is that home owners (or vacation and speculative home owners) will dump their houses as soon as they see house prices rising in the neighborhood!! Your assumption is that capitalism will quash speculation!! But, in a destabilizing speculation, there is a new element called hoarding. This is what you are failing to see. If a house owner were to sell, an investor would hoard that house for speculative reason. The builder could build as many, but speculators are going to hoard them. Capitalism can only support hedging but not destabilizing speculation. Under the destabilizing speculation scenario, home owners dont sell immediately. A home investor, if he has 5 houses, sells appropriately to balance the cash needs and keeps the rest hoping to cash in later - if he sees that prices always goes up!! This happens ONLY when he knows prices always goes up (this is the very basis of speculation). where do you see oil hoarding today? Significantly in SPR (and the assumption that future hoarding will be in China SPR)!! In september, SPR had 10% below average oil storage. Today they have 15% above average storage!! i.e SPR and probably large energy users must be hoarding like crazy!! Speculators are taking humongous advantage of it!! In like manner, in the case of copper, I'm sure Home depot, Loews are all stocking up more and more on copper products. Sure, the demand might be less than the amount HomeDepot has hoarded. But if the CEO is worth the millions of his salary, he will hoard as much copper as possible if he knows for sure, the rise in copper price is more than the interest rates!! This is why you need to watch the credit offtake - that Doug Noland follows. As the business credit offtake increases, it means, business men are assuming future prices are going to rise much higher and hence they need to hoard now - by borrowing in the credit markets!! Actually, this hoarding itself could cause HomeDepot to report higher earnings even if there is less retail sales!! Are you seeing home depot with zero inventory, LME with zero stock? If that were the case, we can say demand is absolutely depleting the stocks. It is that inventory you need to watch!!! I'm not saying demand is not growing - All I'm saying is that demand is growing and probably speculation is growing much fiercely than demand!! Maybe couple of years from now, you might hear lot of people were hoarding and causing the prices to rise ... paving the way for deflation...Also, when you enter ponzi scenario, there is most likely to be virtual hoarding!! Also, paper speculation (like option pricing) can cause real world price level to increase above and beyond real world supply/demand characteristics (this should be reversed in the deflation scenario where prices fall below the actual fall in demand). It is my opinion that lot of speculation is entrenched in the market place today....
