Wrong Place to Blame
I made the point in my book Trend Following that traders are not to blame for price trends. Great traders follow trends. They don’t generate them.
Along those lines a good excerpt from Peter C. Fusaro and Gary M. Vasey:
“…don’t blame the hedge funds. They are only a sign of a woefully under-invested energy market that has suffered neglect for decades. They are true trend followers and they are attracted by tightening supply/demand along with ongoing potential disruption through terrorism and other unforeseen events. Contrary to what you may read elsewhere, they aren’t the underlying cause of rising energy prices. The hedge funds see the writing on the wall as a result of the lack of real investment in the energy complex combined with increasing demand. And this is at a time when their traditional alternative investment strategies and markets haven’t performed well. They are armed with ever increasing amounts of investor’s cash looking for a market…the recriminations have already started with various politicians and energy industry figures crying “foul.” By placing the blame for raising energy prices on “speculators” and “profiteers,” the public’s attention is drawn away from the real issue a sustained lack of investment in energy industry infrastructure. Yes, it’s true that hedge funds and investment banks seek to make a profit in the energy industry. In fact, this influx of cash is a good thing for liquidity and for the energy companies that need access to capital. Yes, it is true that speculation tends to magnify an existing trend somewhat by helping to accentuate that trend but no, speculation is not the underlying reason for rising energy prices. It is clearly market fundamentals of supply and demand and an aging energy infrastructure that is the basis for the trend.”
