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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (63299)6/10/2006 4:12:03 PM
From: skinowski  Read Replies (1) | Respond to of 110194
 
If I am a big producer of widgets (or gold, or corn) - and I know my cost of production, it makes sense for me to sell futures contracts on my product. I would not buy those futures back, but would settle them by delivering the product.

In fact, if I refuse to sell forward any of my product - thinking that perhaps it will go up in price by the time it is produced - I am taking a risk. In this case I am acting not as a commercial hedger, but as a speculator.



To: Tommaso who wrote (63299)6/12/2006 12:44:36 AM
From: mishedlo  Read Replies (1) | Respond to of 110194
 
And in some cases, I think they did sell more gold than they were capable of producing.

If any did they could be in trouble.
The other problem (more serious IMO) is failure to account for rising energy costs on what they sold forward (presumably at a profit).

I suspect many did fall into that trap.

It is also possible that there are some obligations on LT debt that could force liquidation in such a scenario.

Mish


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