Market pricing broken - no longer free, fair, or believable

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21

gsti,
You seem to be correct that in certain circles supply and stock are not used as synonyms, but as Chris notes in a post below, there are two ways the word supply can be used. The following is a quote from dictionary.com. Definition #8 is the appropriate one in this case.

sup·ply1 /səˈplaɪ/ Pronunciation Key - Show Spelled Pronunciation[suh-plahy] Pronunciation Key - Show IPA Pronunciation verb, -plied, -ply·ing, noun, plural -plies.
–verb (used with object)
1. to furnish or provide (a person, establishment, place, etc.) with what is lacking or requisite: to supply someone clothing; to supply a community with electricity.
2. to furnish or provide (something wanting or requisite): to supply electricity to a community.
3. to make up, compensate for, or satisfy (a deficiency, loss, need, etc.): The TVA supplied the need for cheap electricity.
4. to fill or occupy as a substitute, as a vacancy, a pulpit, etc.: During the summer local clergymen will supply the pulpit.
–verb (used without object)
5. to fill the place of another, esp. the pulpit of a church, temporarily or as a substitute: Who will supply until the new minister arrives?
–noun
6. the act of supplying, furnishing, providing, satisfying, etc.: to begin the supply of household help.
7. something that is supplied: The storm cut off our water supply.
8. a quantity of something on hand or available, as for use; a stock or store: Did you see our new supply of shirts?
9. Usually, supplies. a provision, stock, or store of food or other things necessary for maintenance: to lay in supplies for the winter.
10. Economics. the quantity of a commodity that is in the market and available for purchase or that is available for purchase at a particular price.
11. supplies, Military.
a. all items necessary for the equipment, maintenance, and operation of a military command, including food, clothing, arms, ammunition, fuel, materials, and machinery.
b. procurement, distribution, maintenance, and salvage of supplies.
12. a person who fills a vacancy or takes the place of another, esp. temporarily.
13.
supplies. Obsolete. reinforcements.
14.
Obsolete. aid.
[Origin: 1325–75; (v.) ME sup(p)lien < MF souplier, var. of soupleer ≪ L supplére to fill up, equiv. to sup- sup- + plére to fill (see full1); (n.) late ME: aid, succor, deriv. of the v.]
—Related forms
sup·pli·er, noun
I hope this helps.

Sorry about the formating - I can’t seem to copy as text only.

Reuben

22

"If things don’t reverse in the next two weeks (especially if Oil and Gasoline stocks continue to fall hard), expect to see an enormous gasoline / oil cost spike come this winter. "
And when will these price spikes come? Winter? After the election? When the people who MUST buy for heat will be in the market for it? Certainly not now, before an election, when the weather provides for much more latitude in lifestyles by the customer base!
We are being played. I agree with Chris and the others who have ever taken Economics 101. The current market defies all logic.

23

Let’s see. This morning Obama and McCain both happen to urge that the FDIC limits be increased to $250,000. This afternoon, we hear that the FDIC will be requesting that the limits be increased to $250,000. Is this a coordinated effort to stave off an impending (ongoing?) silent bank run?

24

Chris,

Your insinuation that the whole pricing mechanism of free markets is now in question because of the gas shortage in Atlanta is misleading to say the least. If you study energy markets you know that it is inefficient and regional. This is not new. The refinery problem caused by hurricanes is a legitimate explanation for gas shortages in Atlanta. The fact that prices haven’t adjusted on the futures markets suggest that professional traders see this as both temporary and regional. The fact that refiners aren’t rushing to produce more gasoline can very likely be due to the velocity of the decline in oil prices and them waiting for a more attractive spot. There seems to be quite enough panic and disconnected logic floating around these days so I see no reason to add to it in situations where reasonable explanations do exist. I would suggest to you that the apparent pricing disconnects might also be a result of hedgefund and other distressed entities selling what they can to raise cash. There is also likely hoarding taking place. If this is the case it is not a sustainable price/availbility shift and will normalize in short order.

 

Anthony

25

I thought #10 was the best…

Economics. the
quantity of a commodity that is in the market and available for
purchase or that is available for purchase at a particular price.

 

26

I did not say that there was a shortage because of Atlanta, I was using that article as foil because there was the perfect quote in there about supply and demand and prices.

I then posted a chart of our national supply showing it was in serious deficit territory. I made that claim that there is something broken in our markets at the widest possible levels and across several markets.

And my point was that what we are experiencing is not representative of normally functioning efficient markets. There is something chaotic going on and my job is to connect those dots early and often. That’s what I do.

I have found that by reading these signs for myself and thinking them through for actionable conclusions has been absolutely the right approach for the past several years.

What you call "disconnected logic" is what I call "reading the tea leaves" in an attempt to get people to see things in advance of reading about them on the front page a couple of days too late.

I smell something quirky going on here, it runs against all of my observations of the past years, and it bears mentioning. Market breakdowns are indicative of change.

Some people fear that, and that’s OK, I find value in knowing about the changes early.

27

In todays society, a lot of people are doing their bank business using Internet. There are no lines outside the banks to report of in the media.

When I am talking to my friends, a lot of them have recently transfered money from the banks to other secure assets. And one thing that I am sure of is, that no bank will admit this, unless they really have to.

So it very possible that something is going on…

28

I think I agree that you may have gotten the tea leaves wrong, here. The gasoline markets largely depend on JIT delivery from the refineries. You can argue about why, but the point is that there is never a large reserve in the system in terms of months of consumption available. There has been a temporary disruption in that supply. The disruption is national, but is being felt more keenly regionally. However, prices may not rise if the expectation is that the JIT system can quickly and easily recover.

You said in your initial post that the only possible free-market explanation was anticipation that demand would drop to match supply. I’m suggesting a second possible free-market explanation: the market expectation is that supply will increase sharply very soon. This is consistent with what we know about this industry and experienced after Katrina.

Also, we know there are some non-free-market forces already at work. Anti-price-gouging laws have been in effect in a number of the most-impacted areas, including where I live in North Carolina. These laws intentionally prevent a price spike when supply is disrupted. You can argue about the social merit of such laws, but we know they are there and that they have been enforced. This would also help explain what we see.

29

 

It seems to me that he’s not just talking about Atlanta. The graph of supply from the DoE is not just for Atlanta. It’s for the whole country.

—edit:

Ok, Chris brought up the same point I did while I was typing this.

30

Now, I have no idea about the gasoline thing. However, I can tell you for an absolute fact as someone "on the ground" that the physical market for gold and silver would suggest that there should be a substantially higher price. No one is willing to sell physical at these prices. Period. I don’t know what it means, but I do know that the physical market for gold and silver is not behaving like a normal market.

31

 

According to the macneil lehrer newshour, the fed in conjunction with other central banks pumped $600 billion into the financial markets yesterday alone. What do they even need congress’ bailout for?

32

I’m in Canada and frequently buy gold (maple leafs). We don’t seem to be having any supply issues, so I would expect you to be able to buy online from Canadian suppliers - I’m pretty sure it can be shipped South without any taxes.

Best of luck.

 

33

This makes sense, and matches up with what I’ve read elsewhere. But there’s also the possibility of direct manipulation happening, i.e. banks holding large short positions in silver depressing the price.

34

I’m all for tea leaves but really in this case we don’t need the caffeine. The combination of seasonality with unwinding of winning positions which I believe one of the other posters mentioned explains it quite sufficiently I think. Nevertheless market prices don’t follow logic when people hoard and hold. The best example is probably real estate probably because it is the least liquid. There is usuallly a big disconnect what houses are currently worth and what the people who own think they are worth. Oil, gold, silver and US dollars have all gone through convulsive movements. It is questionable how much supply and demand has been a factor in these moves. It is problematic looking at globally traded commodities priced in US dollars. If you want a real read on all this then you have to look at purchasing power of each. Things are simply changing too fast to expect efficient pricing. People are trying to anticipate what will happen next and making positions to hedge possible outcomes. Possible outcomes has little or nothing to do with reality yet has an impact on pricing. The US dollar going higher during this time seems illogical. Everything is relative and the rest of the world seems to have as many problems as we do so why wouldn’t the dollar go up. Dollar up - commodity prices down - no regard for supply and demand of actual commodity. It’s just how it works.

Remember markets are rational until they aren’t and that is usually when there is extreme of some emotion. In this case it is fear but things get just as out of whack when it is greed. It is a dark journey applying rational market logic to situations where logic has long fled.

35

Thank you reubenmp3, Chris, I stand better informed , re supplies.

Still, there was still no confusion in the main part of my diagreement, as the case is, supply as you intended the meaning and stock as I intended the meaning, are the same thing. How much gas is available. As long as more gas is available than is required the percentages can move about as much as they like. You would expect to see gas supply/stock reducing and prices going down in the current environment. I think you need actual figures (which you may well have) to come to that conclusion Chris rather than percentages. Useage may well be expected to go down, and it normally does after the summer. And surely it would be expected to as we are in , well to look on the positive side , a recession.

I am not saying you are wrong Chris, I am just saying from what you have posted, I think it is a hasty conclusion to draw.

http://tonto.eia.doe.gov/dnav/pet/hist/mtpupus1m.htm

That links to actual gas sales, although in this instance they are saying gas supplied… god i hate symantics. :confused:

The fall in gas sales I think is very low considering the current economic climate, and if I were a Bush I would feel quite happy with those stats :slight_smile:

 

36

I agree Chris -

I think we need to rethink "free market" theory and paradigms, given the lopsided leverage available to the largest Central Banks, particularly when multiple CB’s around the globe can, and do, act in concert.

The Precious Metals, due to their status as the "mortal enemies" of the carte-blanche Fiat-currency regimes, are particularly prone to Central Bank manipulation (oddly, the CB’s don’t appear ready to "let go" of the stuff, even given their definition of it as "relic" metals…)

Ted Butler, a well known Silver guru, had an article yesterday, in which he tracked for August 2008, the open positions and COT (commitment of traders) reports from the "regulators" of the futures markets - CFTC.

From that data, it is obvious that during August 2008, "…one or two U.S. banks sold short the equivalent of 140 million ounces of silver in one month. That’s more than 20% of world annual mine production. Less than three U.S, banks sold more than 10% of world annual mine production of gold simultaneously…"

That kind of concentrated short-selling (in the case of silver), is unheard of in corn, oil, or other commodities.

Of course, the paper-price of silver and gold had the hardest falls in several years during July/Aug, and this must certainly be by design ("we certainly don’t want the populus to flee to the safety of tangibles during a credit crisis…").

But you are correct, there is a large disconnect between the paper-price, and the physicals-price - i.e., the basis.

In fact, the huge degree of leverage between the number of open contracts in the futures market, and what can possibly be physically delivered, is similar to the "fractional-reserve" concept used in banking in general.

This leads to some possibility of a "run on the gold and silver supply" at some point, should a crisis-mentality continue to grow, particularly true with the huge volumes in the ETFs of SLV and GLD.

This possibility is one further reason that the CBs continue to strongly "participate" in the psychological trading of the gold and silver markets.

It is also a reason that we need to broaden our understanding beyond "free market" supply & demand mechanisms, and not kid ourselves on how the "rules" are written.

37

Apologies - Here is the link to Ted Butler’s analysis of the CFTC data:

http://news.silverseek.com/TedButler/1222712899.php

 

38

yeah. and the stock market up really pisses me off even more. clear manipulation; when you consider theres no supply but huge bars…;/

39

i dont think they have any gold! the modern money system doesnt require any; thats what is collapsing, the credit debt money supply IMHO. If they were selling, wouldnt there be supply?

40

if you have a significant amount of money in the bank, you need to call like a week ahead. it can take 1 month or more to pull 100,000. theyshould have done 5k; if they didnt then you need to seriously run that bank.