From Chuck Cain

Hello Michael: I am tired of hearing about the speculators driving up the price of oil. People, mainly politicians and reporters, who dont bother to do their homework are giving this a lot of play. If they did proper research, they would find that, in futures, it is just as easy to speculate on a price drop by being short as it is to speculate on a price increase by being long.  Speculation on the short side would have exactly the opposite effect described in the press and put downward pressure on prices. But the fact is, that speculators are about evenly divided between being long and being short, and thus, cancel each other out. This (PDF) comes from our friendly government regulator who has access to all sorts of position reporting by brokers and exchanges. I especially like the graph at the end. Regards, Chuck Cain

Thanks!

For all of those complainers out there screaming about “bad” speculators, look in the mirror!

From a reader comes thoughts on intrade.com

intrade is a prediction-based website, where they offer essentially “bets” on outcomes. each trade matures at either 0 or 100, a negative outcome and a positive outcome to the event/trade in question, respectively. if at the extreme, markets and bets such as these were perfectly predictable, then the spread between the starting point of the bet and the ending point of the bet would have zero variance. in other words, each bet would be binary: if we could predict with 100% certainty that the Dow would finish above 12,000 by the end of July 2008, then the bet would start at 100 (actually slightly less given the time value of money) and mature at 100, as each player’s minimum bid would be essentially 100. thus a unary outcome - bets finish where they started as everyone has 100% certainty on the outcome, as markets would then be 100% predictable. conversely, if markets and bets such as intrade offers were not 100% predictable, then the variance of the price should be all over the place, which is exactly what you see at intrade. bets start at 20, move to 90, then mature at 0. some start and stay at 50 forever, only changing within a couple of days of the bet’s maturity, as certainty emerges. i recall the 2004 election, where Bush was given up as the exit polls showed him losing, and the intrade bet on Bush to win I believe hit 20, only to mature at 100 a few days later. So intrade’s bets essentially proves the unpredictability of markets and events: bets often start at 50 (zero prediction as it is equidistant), often move 90+ points as they swing from one outcome to another, but rarely do they start and finish near an outcome, given the complex system on which one is betting. this again all essentially proves that NOTHING is predictable in a statistically significant basis.

Thanks.

Feedback from a reader:

Mr. Covel: I commented on one of your commentarys, you emailed me with a question, and I responded with was was really a half assed answer.  First, your web site is much easier for me to navigate and view - cleaner; part of this is due to my older computer, slower speed, and less then good reception.  Second, much of the commentary which you quote is helpful and germane, however, while some YOUR comments are also helpful, I find that too many are snide and totally uninformative; as though you’re playing to an audiance of “true believers” and you have to feed them a fish every so often - when that occurs you’re little better then the hacks and talking heads you disparage. I am a very rank amateur when it comes to investing/trading; very timid and rather feeling my way along. I am looking for information that will assist in how I go about what I do, and hopefully the info is void of any blarney - hard to find that. Thanks. John H.

I don’t understand why the truth needs to be sugar-coated John? Instead of throwing me generalities, wny not explain what the “snide” is and why you find it so?

I don’t care whether it is monster optimism on the upside or over the top “the world is going to end (PDF)” pessimism on the downside, none of it helps you to know when to buy and sell precisely.

If the U.S. stock market keeps going down and oil keeps going up doesn’t the Fed have a problem whether they lower or raise rates? We bailed out LTCM summer 1998. Then we lowered rates to nothing after 9/11 to prevent a further stock market drop. Those rate decreases after 9/11 supplied the liquidity to grow the real estate bubble. Not so smart moves over 10 years.

A nice defense from CATO.