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My macro take on the Market is this.

Physical oil prices are a matter of supply and demand. But hedging is far more expensive than it needs to be because volatility is far higher than it needs to be because we allow speculative money to be involved in the price setting mechanism - albeit indirectly.

So option premiums are systemically higher than they should be, for instance.

Now hedge funds make money and hedge funds lose money and that's a zero sum game FOR THEM.

The winners in the game - and they are increasing their take year on year - are the Investment Banks, and any major oil trader working with them.

And the Investment Banks OWN one of the major trading platforms while another bunch of "locusts" (as the Germans have it) own the other.

Where do all the profits now needed to pay shareholders in these IPO'd exchanges come from?

When its quiet, (and indeed, whenever they CAN) I am convinced that some of the players deliberately jerk the market around and compensate each other OTC for any losses, making money on deals priced against the manipulated prices.

Not to mention the squeeze plays that were pretty much endemic until - inevitably, one of the buggers gets too greedy and the rules/specs get changed until the next time.

Still, one may argue (and I have some sympathy) that this is "acceptable" market manipulation - among "consenting adults"...

I am also convinced that certain major traders routinely share market sensitive information with certain investment banks and essentially operate in partnership to screw the rest of the market.

The profits that these intermediaries take out of the market directly and indirectly (eg Prime Brokerage and knowledge of trading stops....) are at the expense of trade hedgers and speculators such as hedge funds (for whom I have little sympathy).

The overall picture IMHO is that the intermediary lunatics are running the market asylum.

New neutral (as between end users and intermediaries)global market infrastructure is needed for which there is certainly an appetite among producers, and I believe that if the US government were remotely representative of the US people then they would support new and disintermediated infrastructure as well.

 

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 10th, 2006 at 05:25:00 AM EST
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