JP via RSS
Producers versus Speculators~ Problem of the Age?
While we make no forecasts, we note the mood of the population is sour despite a 72% increase in the largest 500 companies plus dividends.
http://stockcharts.com/charts/gallery.html?spx
We long laboured for some sort of explanation, knowing that blame is reckless and revenge useless.
We looked for a true compass to navigate our way through troubled and muddied economic waters.
Beside defining CPI as the true cost of corporate government, we found another, perhaps better explanation in the difference between producers and speculators.
Futures derivative markets were developed to enable commercial producers to hedge their cost of raw and finished product.
An airline, cereal or confection company needs to buy jet fuel, whole grains or cacao to deliver their product or service, and wants to pass the risk to someone to insure a stable supply and costs. A driller, farmer or miner or wants to hedge gas and oil, agricultural or metals prices to insure stable profits.
In all cases, the producers pass their risks on to speculators who indemnify them by assuming the risks to profit.
All speculators seek to buy low and sell high in a zero sum game.
They provide liquidity, while assuming higher risk and reward than the producers.
However, somewhere along the line, the producer economy became the casino economy, as Keynes observed in the last Great Depression.
The BIS estimate of unregulated over-the-counter total global derivatives passed the world GDP some time ago at $604.6 Trillion versus 60.6 Trillion, growing at 17% the last two years versus 2%.
http://www.bis.org/statistics/otcder/dt1920a.pdf
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=global+gdp
