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Unread 28 Jun 2008, 10:19   #1
All Systems Go
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Food Crisis

Apparantly a food crisis will soon be upon us. "The days of cheap food are over," so they say.

There has been a fair bit of this, but to my knowledge there has not been any serious consideration of what the impact of this will be.

To my mind, one of the most obvious implications of this is that obesity will rise and general health will go down, putting greater strain on the NHS.

Greater food prices = fatter people

Oh, it seems like it should be a paradox! Why isn't it a paradox!
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Unread 28 Jun 2008, 12:56   #2
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Re: Food Crisis

Higher food prices don't have to result in fatter people, because the 'crisis' will have a snowball effect on the entire food market, including the fast-food market. When the wheat prices increase, then the meat prices follow because cattle usually eats wheat/grain.

Or weren't you referring to that?
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Last edited by Alessio; 28 Jun 2008 at 13:22.
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Unread 28 Jun 2008, 13:01   #3
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Re: Food Crisis

I was refering to the liklihood that people will eat foods which are cheaper, or that food companies will make food with cheaper ingrediants. Affordable food will therefore have higher levels of fat and salt and that kind of thing.
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Unread 28 Jun 2008, 13:16   #4
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Re: Food Crisis

It could well be that people will start eating more potatoes (and fish) yet again.
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Last edited by Alessio; 28 Jun 2008 at 13:26.
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Unread 28 Jun 2008, 13:41   #5
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Re: Food Crisis

Potatoes? You mean fries, I assume?
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Unread 28 Jun 2008, 13:43   #6
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Re: Food Crisis

Starving eat homeless. If you're starving and homeless, you eat your own limbs.

Not original, but it should work.
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Unread 28 Jun 2008, 15:26   #7
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Re: Food Crisis

Food is a necessity, not a luxury. People will (or should...) include their food budget first, and then luxury items after. Because of this, it's likely that spending on other consumer goods will drop and food shopping will remain relatively the same (excluding luxury food).
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Unread 30 Jun 2008, 15:05   #8
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Re: Food Crisis

The other way of looking at this (as I heard on the radio the other day) is that the consumption of luxury foods may actually increase.

Luxury foods will be largely unaffected by increases in the cost of production, since they are by their nature not tied to basic commodities.

So, lets say a luxury item is twice as expensive as a basic one. If the basic one increases by a 50%, then the luxury item is now only 30% more expensive and appears to be almost a bargain, so it's quite possible more people will buy it as it appears to be more affordable.
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Unread 30 Jun 2008, 17:13   #9
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Re: Food Crisis

Quote:
Originally Posted by Dead_Meat
The other way of looking at this (as I heard on the radio the other day) is that the consumption of luxury foods may actually increase.

Luxury foods will be largely unaffected by increases in the cost of production, since they are by their nature not tied to basic commodities.

So, lets say a luxury item is twice as expensive as a basic one. If the basic one increases by a 50%, then the luxury item is now only 30% more expensive and appears to be almost a bargain, so it's quite possible more people will buy it as it appears to be more affordable.

Possibly, or more likely unscrupulous traders will increase the price of their luxury item keen to turn a larger profit, blaming rising fuel costs to boot.

I suspect whats more likely is the trick of keeping the price similar while making the product a smaller quantity.
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Unread 30 Jun 2008, 17:19   #10
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Re: Food Crisis

The price of everything will rise, staple and luxury alike, because the price of food is not only a formula of demand, but also dependent on the price of oil. SO, everything will go up. This means 1st world countries will pay more for forr across the board. And that 3rd world countries will face famines, especially in Africa and South East Asia.

This crisis, deepened my bio fuel boom, will eventually give way to onomies will go to the rescue of poor countries and their biggest contribution will come in the form of technology revealing and training. Thus, while short term we are heading towards a major world crisis, 10 years down the road it should be back to normal, 30 years down the road the world will produce more food percapita than ever before in history.
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Unread 30 Jun 2008, 18:54   #11
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Re: Food Crisis

Quote:
Originally Posted by Aedolaws
This crisis, deepened my bio fuel boom, will eventually give way to onomies will go to the rescue of poor countries and their biggest contribution will come in the form of technology revealing and training. Thus, while short term we are heading towards a major world crisis, 10 years down the road it should be back to normal, 30 years down the road the world will produce more food percapita than ever before in history.
The problem is, and it's a much debated problem, that there is only a limited amount of arable land available. Even if the production intensifies when the demand grows, and even when new land is made available (at the cost of nature, such as rainforests). With this limited amount of land, the food- and biosector will have to compete with eachother for land if they want to meet the increasing demands of the market. The fuel market is known for it's continuously increasing demands and skyrocketing prices. If we become more and more dependant on biofuels then the prices will go up. The financial insentives to produce wheat for the foodmarket will decrease when the demand for biofuels increase. Thus more arable land will be used for fuel production instead of food production. Meaning that the crisis could actually intensify when the biofuel market grows.

Investments in intensified use of arable land do not have to result in more and cheaper food becoming available, if we also continue investing in using our food as fuel.
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Last edited by Alessio; 30 Jun 2008 at 19:32.
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Unread 30 Jun 2008, 20:21   #12
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Re: Food Crisis

I agree. But Malthus was proven wrong decades ago. Tech is a wonderful thing.

Moreover, this will never be the single source of energy. There will always be, more or less, nuclear, coal, gas, oil, solar, wind, thermo, etc... including future ones.

Further, biofuels have the inherent benefit that they are renewable. That is why they are so appealing as a reliable source of energy. So, while I agree 100% energy demand will always impose a burden of food production+biofuel, I wouldn't be surprised if especially-biotecnologically designed-super-energy-producing crops are developed in the next 30 to 50 years to counter the problem.

As time goes by, energy demand will grow perhaps, but so will also production, efficiency & conservation.

My point was, that while likely catastrophic in the short term, biofuels my prove to be what the 3rd world needs. They can easily become food and energy baskets if the developed countries give them the technology, the training and the markets.
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Unread 1 Jul 2008, 08:01   #13
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Re: Food Crisis

There is no food crisis. There is a massively inefficient market and a retarded media though. What I'm trying to say is, that, with the tariffs and trade barriers the western countries hold up we're being held hostage in a situation where the infrastructure is unable to develop in where it should in order to support the increasing demand for food. The problem there is, that dramatic industry development often requires a level of export. Even if someone'd invest in building basic infrastructure for food production in a country B outside the European Union/United States, the chances are, he'd go out of business even if he could produce goods of equal quality cheaper and more effective. This has to do with a 19th (or early 20th) century thought of the necessity of protecting homeland food production to ridiculous extents.

The only thing that's vaguely interesting about this "food crisis" is the fact that it leads to yet more polarization. It's like a little extra tax to the less wealthy.

Quote:
Originally Posted by Meatboy
Luxury foods will be largely unaffected by increases in the cost of production, since they are by their nature not tied to basic commodities.
This can hold true. Let's go through it a bit. Most of the people who consume "luxury" foods are wealthy. Income spent on food already represents a relatively minor part of their total net income. All this won't affect the relative purchasing power of the rich people as much as it does for poor people. The people who have money are largely unaffected, and even if the so called middle class will whine and cry, the truth is this doesn't affect them that much.

At best, this sort of stuff could, though, result in an interesting Giffen -effect. This would be due to the fact that the people who are already consuming the less expensive food products (and little if any of those mentioned "luxury foods") and investing a larger share of their net income in grocieries experience a more significant decrease in their real income. Even if the prices of food will be increasing, these people will be increasing their demand on the least expensive, most basic foods.

Quote:
Originally Posted by Aedolaws
The price of everything will rise
This is largely trivial. The price of everything has, most of the modern market history, risen. There's only so many examples of actual stagflation/deflation in the history. What comes to real price increases, I wouldn't necessarily sign this.

Quote:
Originally Posted by Alessio
The fuel market is known for it's continuously increasing demands and skyrocketing prices.
The fuel market is known for it's retarded inefficiency, oligopolistic hegemony, and a couple of people wearing rags on their heads making a lot of money out of it. If they actually wanted the fuel prices to remain stable, they would have them remain stable and simply reduce the limits on the output. It's a giant conspiracy out there. The real need of alternative fuel sources grows not only from the fact that the currently widespread ones are nominally limited and will probably eventually run out, but the fact that there's a bunch of cakefaces sitting on them.

The increasing food prices will hit the people with less income harder. This is what's actually interesting.
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Unread 1 Jul 2008, 10:35   #14
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Re: Food Crisis

The only thing about the fuel market that surprises me is that oil producing countries failed to realise sooner that they could just double the prices overnight, and still get filthily rich.
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Unread 1 Jul 2008, 11:11   #15
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Re: Food Crisis

Quote:
Originally Posted by Mzyxptlk
The only thing about the fuel market that surprises me is that oil producing countries failed to realise sooner that they could just double the prices overnight, and still get filthily rich.
Potentially crippling your market isn't a good idea really. That said the rising demand from Asia would easily counter-balance any drop-off from the conventional top economies so it's not really that relevant. Realistically though if you're an oil producing country you don't want intensive investment in viable alternative fuel sources so probably sky-high prices aren't a good idea.
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Unread 1 Jul 2008, 11:22   #16
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Re: Food Crisis

Quote:
Originally Posted by Mzyxptlk
The only thing about the fuel market that surprises me is that oil producing countries failed to realise sooner that they could just double the prices overnight, and still get filthily rich.
This is due to the fact that all this time they've been receiving enough money for their needs to ever really "need" more.

Quote:
Originally Posted by JohnnyBGood
Realistically though if you're an oil producing country you don't want intensive investment in viable alternative fuel sources so probably sky-high prices aren't a good idea.
Or then you're shortsighted and simply don't give a ****. Realistically, any viable alternative for traditional "fuel" is far-fetched, except perhaps electricity (hail traditional fuel, or possibly nuclear power - let's face it, the don quijote method isn't scoring high enough). If you look at how things generally go in the countries mentioned, you can quite easily question whether they actually give a damn about most things.
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Unread 3 Jul 2008, 12:04   #17
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Re: Food Crisis

Quote:
Originally Posted by Tietäjä
The fuel market is known for it's retarded inefficiency, oligopolistic hegemony, and a couple of people wearing rags on their heads making a lot of money out of it. If they actually wanted the fuel prices to remain stable, they would have them remain stable and simply reduce the limits on the output. It's a giant conspiracy out there. The real need of alternative fuel sources grows not only from the fact that the currently widespread ones are nominally limited and will probably eventually run out, but the fact that there's a bunch of cakefaces sitting on them.
Your understanding of why oil prices are so high is too simplistic.

Unfortunately the price of oil isn't simply regulated by basic supply and demand economics. It is a traded product and therefore subject to market forces and more importantly speculation. The reasons why the oil price is so high at the moment has more to do with speculation by traders rather than any intrinsic change in current demand from the consumers or current supply from the producers.

Oil (along with other commodities) has become a basic hedge against equities, more so as traders continue to worry about the failing credit markets. Oil is also somewhat inversely correlated with the dollar, and therefore as the dollar has been weakening, so to has oil prices increased. Oil is also proving to be somewhat of a safe haven against inflation. Of more importance, is the speculation by traders that oil prices will increase in the future. The futures market is often a good indicator of where traders think oil prices will be in the future. Where you have traders taking out call options (the right to buy at some time in the future at the strike price) upwards of $250 it tells the market that people are betting that in x number of months/years they believe that the price of oil will be higher than it is today. The market sometimes (as it has done) responds to this with even more speculative buying on the assumption that the purchasers of these options are indeed correct.

The next few months are going to be very interesting. Oil prices might continue to increase or there is a growing chance that the bubble will burst on commodity and oil prices.

On another note, if you do your research, I think you'll find that some of the larger oil producers and drillers have reasonably large stakes in alternative energy companies.

Last edited by Zar; 3 Jul 2008 at 13:13.
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Unread 3 Jul 2008, 13:28   #18
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Re: Food Crisis

Quote:
Originally Posted by Zar
Your understanding of why oil prices are so high is too simplistic.
It's simplistic because I wasn't having an attempt to write a thesis on the oil price development here.

Quote:
Unfortunately the price of oil isn't regulated by simple supply and demand economics. It is a traded product and therefore subject to market forces and more importantly speculation.
And most importantly politics. If you look at what happened during the last oil crisis, there's a common factor. Speculation isn't borne out of nowhere - investors don't speculate on random products simply for shits and giggles, they do it for gains. And they do it on goods that have the potential to produce such gains. Generally, goods that are under an efficient market aren't subject to as much speculation simply due to the fact that the probability of the potential gains is smaller.

Quote:
The reasons why the oil price is so high at the moment has more to do with speculation by traders rather than any intrinsic change in current demand from the consumers or current supply from the producers.
It's interconnected. You cannot ceparate speculation from it's source. If the oil production/supply wasn't controlled by a minimal amount of people with an incentive to gain profits from it themselves, it wouldn't be such a good product to speculate on.

Quote:
Oil (along with other commodities) has become a basic hedge against equities, more so as traders continue to worry about the failing credit markets. Oil is also somewhat inversely correlated with the dollar, and therefore as the dollar has been weakening, so to has oil prices increased. Of more importance, is the speculation by traders that oil prices will increase in the future. The futures market is often a good indicator of where traders think oil prices will be in the future. Where you have traders taking out call options (the right to buy at some time in the future at the strike price) upwards of $250 it tells the market that people are betting that in x number of months/years they believe that the price of oil will be higher than it is today.
Have you ever stopped to wonder why oil is in the position it is in today's investment market? It's definately not because the industry is well and on a solid structure. Why would US announcing an attack on Iran (purely hypothetical) cause a rise in the oil prices? Also, what will happen to the oil prices once US is able to control the output of the oil "liberated" in Iraq? Is this all simply because "people like to speculate with oil"? I'm going to quote myself now.

Quote:
Originally Posted by Tietäjä
The fuel market is known for it's retarded inefficiency, oligopolistic hegemony, and a couple of people wearing rags on their heads making a lot of money out of it
The fact that (Iran/)Iraq control vast supplies of oil has been rumored as one of the factual reasons of the US attacks to Iraq. Some would go to the extent of saying that all the anti-terrorism talk, the export of democracy and the liberation of the Iraqi people is a footnote in compared to seizing the oil. You'll probably outright deny this, because this would imply that a part of the reason for oil prices must indeed originate from the owners of the sources - the cakefaces who happen to own the land the stuff is in.

Quote:
Originally Posted by Zar
The market sometimes (as it has done) responds to this with even more speculative buying on the assumption that the purchasers of these options are indeed correct.
As a self-fulfilling prophecy.

Quote:
The next few months are going to be very interesting. Oil prices might continue to increase or there is a growing chance that the bubble will burst on commodity and oil prices.
There's a lot of opinions on this. I think the general consensus is that we're never going to see "cheap" oil again, but that's a matter of perspective. If you compare a 145$ a barrel (which they just broke today) to a 250$ a barrel, the 145 is definately cheap.

Quote:
On another note, if you do your research, I think you'll find that some of the larger oil producers and drillers have reasonably large stakes in alternative energy companies.
On this note, if you read what I said, you're supporting it at the moment. While I didn't form it as it should be on a scientific mag (which this isn't), I was essentially trying to say that the bottom reason oil market is so ****ed up is because the ownership of it (I'm repeating myself, I'm aware) is centralized and oligopolistic. OPEC isn't a random club of gentlement. They're in it to make money.

If what you're saying is that the oil prices are on a rise because of speculation, I'm partially agreeing. What I'm saying, though, is that the speculation is a symptom of an ill market. Rest assured, you can say that it's speculation that's causing the price of the barrel to rise, I can't really disagree with you, but I can claim that the speculation originates from the market structure present. It wasn't simply a joke someone came up with.

There hasn't been much anything you could call a speculative attack on the Euro since it was established as an official currency. On the contrary, prior to and during the great regression of the early 90s, there was significant speculative attacks on the Finnish Markka. Why isn't anyone hitting out at Euro? Because it's far stronger than a feeble local currency ever was, or ever could have dreamt to be.

Did I cover my case on why the structural problems of the oil market are a core reason to the price of the barrel going upwards? Mind you, this isn't exactly nothing new, I'll actually continue to elaborate my claims with a real example. The oil crisis of the 1970s. Here's a graph for you. The cakefaces mentioned several times decided to pull a plug on the supply. The resulting incidents lead to the collapse of the Bretton Woods and a depreciation of the dollar, while the oil prices were on the rise (yes, there seems to be a negative correlation between these two. now, a sharp-sighted person would not close out the possibility that this correlation is partly/purely statistical, and doesn't necessarily apply without other factors involved).

Feel free to do more research on the 70s oil crisis. I'll throw a question up again. Why do people speculate with oil?
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Unread 3 Jul 2008, 18:40   #19
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Re: Food Crisis

All I know is that Twiglets now cost £1.11 from my local Asda. Gone are the days when I could pick up a packet for a mortgage-friendly 79p.
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Unread 5 Jul 2008, 21:35   #20
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Re: Food Crisis

Quote:
Originally Posted by Tietäjä
And most importantly politics. If you look at what happened during the last oil crisis, there's a common factor. Speculation isn't borne out of nowhere - investors don't speculate on random products simply for shits and giggles, they do it for gains. And they do it on goods that have the potential to produce such gains. Generally, goods that are under an efficient market aren't subject to as much speculation simply due to the fact that the probability of the potential gains is smaller.
If you've ever worked as a trader, indeed any form of front office Investment Banking, you'll slowly come to realise that people can and do speculate on products such as oil, without being able to produce any factual evidence on future supply and demand constraints. Indeed a form of speculation is to speculate on other traders purchasing or selling the product, without regard as to why they are doing it. This is better described as 'jumping the bandwagon'.


Quote:
It's interconnected. You cannot ceparate speculation from it's source. If the oil production/supply wasn't controlled by a minimal amount of people with an incentive to gain profits from it themselves, it wouldn't be such a good product to speculate on.
You're not getting my point. I'm asking you to rationalise why oil prices have suddenly shot up when the supply and demand for oil hasn't changed by a proportional amount.

Quote:
The fact that (Iran/)Iraq control vast supplies of oil has been rumored as one of the factual reasons of the US attacks to Iraq. Some would go to the extent of saying that all the anti-terrorism talk, the export of democracy and the liberation of the Iraqi people is a footnote in compared to seizing the oil. You'll probably outright deny this, because this would imply that a part of the reason for oil prices must indeed originate from the owners of the sources - the cakefaces who happen to own the land the stuff is in.
I don't disagree with you here.

Quote:
There's a lot of opinions on this. I think the general consensus is that we're never going to see "cheap" oil again, but that's a matter of perspective. If you compare a 145$ a barrel (which they just broke today) to a 250$ a barrel, the 145 is definately cheap.
I would venture that the days of cheap oil are over. The world will have to slowly adjust to oil regularly surpassing $100.


Quote:
On this note, if you read what I said, you're supporting it at the moment. While I didn't form it as it should be on a scientific mag (which this isn't), I was essentially trying to say that the bottom reason oil market is so ****ed up is because the ownership of it (I'm repeating myself, I'm aware) is centralized and oligopolistic. OPEC isn't a random club of gentlement. They're in it to make money.
Of course they are. Why wouldn't anyone else do the same thing?

Quote:
There hasn't been much anything you could call a speculative attack on the Euro since it was established as an official currency. On the contrary, prior to and during the great regression of the early 90s, there was significant speculative attacks on the Finnish Markka. Why isn't anyone hitting out at Euro? Because it's far stronger than a feeble local currency ever was, or ever could have dreamt to be.
I wouldn't be too trusting of the demand for the euro just yet. It's still a young currency and concerns about inflation will continue for a while.

Quote:
Did I cover my case on why the structural problems of the oil market are a core reason to the price of the barrel going upwards? Mind you, this isn't exactly nothing new, I'll actually continue to elaborate my claims with a real example. The oil crisis of the 1970s. Here's a graph for you. The cakefaces mentioned several times decided to pull a plug on the supply. The resulting incidents lead to the collapse of the Bretton Woods and a depreciation of the dollar, while the oil prices were on the rise (yes, there seems to be a negative correlation between these two. now, a sharp-sighted person would not close out the possibility that this correlation is partly/purely statistical, and doesn't necessarily apply without other factors involved).
The reason for high oil prices now have very little in common with the reasons for oil prices during the 70's. Oil suppliers haven't pulled the plug on supply.
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Unread 6 Jul 2008, 10:44   #21
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Re: Food Crisis

Quote:
Originally Posted by Zar
If you've ever worked as a trader, indeed any form of front office Investment Banking, you'll slowly come to realise that people can and do speculate on products such as oil, without being able to produce any factual evidence on future supply and demand constraints.
But you're still stuck with reasonably close history of those. This is what implicitly affects the market. I've never worked as a trader, or in an investment bank, but I really fail to comperhend that they'd pick a random good with no particular reason (a bluntly faceless product, say, pencils) and start making tons of options for them for no particular reason. And that tons would jump into a bandwagon. If you could enlighten me with an example of such a product I'd be very interested to read a case study. Oil isn't good for it. Even if you can't produce any factual evidence on the future of it, even a layman is well aware of say the mentioned crisis at 70s. You can argue till the very infinity that there's currently no reliable signs of oil production/export constraints, but what you cannot do, is get rid of the last 30-40 years of history. Oil is heavily profiled by that.




Quote:
You're not getting my point. I'm asking you to rationalise why oil prices have suddenly shot up when the supply and demand for oil hasn't changed by a proportional amount.
I'll agree with you that it can partially be speculation. But this speculation did not appear out of nowhere. I'm going to argue that what the United States have done in Iraq for years now has a part to play (to sum up, US foreign policy on the Bush jr. era) in this. Now, the speculation if a symptom of outside influences. Something has triggered it. It didn't just happen out of silly (if it did happen out of silly, could you please point me to a major speculative incident in the history that happened out of silly other than mentioned oil crisis, and provide with a case study). I am going to stick to my side and argue that price increases of this side, even if results of speculation, do not simply happen out of nowhere. Now, I'll make a crude allegory. If you've got a STD, and your balls itch because of that, you can scratch your balls all you want but it's not going to end the itch. Because the itch is actually a symptom of the disease, not the disease itself. The reason why such speculation occurs with oil is may be because

a) The 70s oil crisis is widely known as an event that "can happen"
b) Based on past experiences it's easy to say there's not going to be an intervention to cut prices down - we're all aware that a majority of the oil is controlled by OPEC which is the classical example of an oligopoly.
c) There are major nations currently exerting military force in where a lot of oil is - for a political reason or another.


Quote:
I wouldn't be too trusting of the demand for the euro just yet. It's still a young currency and concerns about inflation will continue for a while.
This is sidetracks. The point I tried to make was about the fact that people are less keen on speculating with something that has more realistic backup. A small national currency doesn't.


Quote:
The reason for high oil prices now have very little in common with the reasons for oil prices during the 70's. Oil suppliers haven't pulled the plug on supply.
Yes. But the 70s case cannot be forgotten when you look for incentives why someone would speculate on oil.

What you didn't answer was

Have you ever stopped to wonder why oil is in the position it is in today's investment market?

What it seems you are claiming is that people are speculating on oil at the moment simply for shits and giggles. And that's what's causing the price increases.

What I'm saying is, that the reason the oil prices are volatile in general is the fact that oil has a very recent history and a current strong status of oligopolistic nature (and OPEC behavior generally), which produces a strong incentive to speculate on it. Now, attacking Iraq, and the war stretching longer and longer (one could argue it's still a war zone there) is another incentive. The speculators are grabbing these excisting issues in the oil market and thus attempting to make money of it, causing the prices to increase. Essentially, it's speculating that's resulting in the prices increasing, but if the oil market wasn't already ill to begin with, this would never happen. While we're at it, we could claim that the fact that Iraq was attacked and is still essentially at war must have had some effect on oil supply.

I took the liberty to do some googling.

"An oil economics specialist, Mamdouh Salameh, who advises the World Bank and the UN Industrial Development Organisation, contends that oil prices would be at less than 1/3 of their current level had the US not invaded iraq. - " (Source - it's worth noticing this is fairly fresh.) Here is a broader article regarding this statement.

"Iraq war fears lift oil prices - a BBC headline"(Source - this is to elaborate that there often are sources for speculation)

"One of the things I find puzzling about the whole oil market discussion is how complicated people seem to make it. They get all wrapped up in stuff about forward markets, hedge funds, etc., and lose sight of the fundamental fact that there are only two things you can do with the world’s oil production: consume it, or store it. - Paul Krugman"(Source - I'm assuming you know who Paul Krugman is)

Last edited by Tietäjä; 6 Jul 2008 at 11:07.
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Unread 6 Jul 2008, 11:32   #22
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Re: Food Crisis

Quote:
Originally Posted by Tietäjä
But you're still stuck with reasonably close history of those. This is what implicitly affects the market. I've never worked as a trader, or in an investment bank, but I really fail to comperhend that they'd pick a random good with no particular reason (a bluntly faceless product, say, pencils) and start making tons of options for them for no particular reason. And that tons would jump into a bandwagon. If you could enlighten me with an example of such a product I'd be very interested to read a case study.
I can't think of any 'case studies' because frankly this is a phenomenon that is extremely common in the market. In order to point you into a more recent example, perhaps the aptly named 'dot com bust'. This presided over a period where there was insane speculation and gross overvaluing of companies. P/E ratios where constantly in the 30's and 40's. New dot com companies were literally having cash thrown at them without any real basis or founding.

Another more recent example would be India and China. Both countries saw their major indices shoot up, where both countries had ridiculous p/e ratios, even when the companies the indices were made up of had not grown by that much.

One thing you have to realise is that there are broadly three types of investor.

i) The informed institutional investor. - banks, hedge funds, private equity etc. These types of investors tend to have their own research houses, analysts who do their research on a product/s and investment decisions are usually based on the decisions of their quants and research team.

ii) The uninformed institutional investor - pension funds, corporations, governments etc. These type of investors have very small research houses or none at all. They are completely reliant on the information of the analysts and salesman in the companies they are purchasing/selling products to.

iii) The private investor - individual people, smaller companies etc. Research is limited to reading papers, websites, tips and jumping on the bandwagon.

Investors from ii and iii, especially investors from iii can end up throwing huge amounts of money on questionable research. Pension funds are totally reliant on the honesty of salesman and traders in banks. I probably do not need to remind you that a salesman is motivated by a sale only and rarely stops to tell you their opinion of the product you are purchasing, unless you request it or they consider you an important enough client.


Quote:
Oil isn't good for it. Even if you can't produce any factual evidence on the future of it, even a layman is well aware of say the mentioned crisis at 70s. You can argue till the very infinity that there's currently no reliable signs of oil production/export constraints, but what you cannot do, is get rid of the last 30-40 years of history. Oil is heavily profiled by that.
Fine I agree, history is important and history will have been priced into the market.


Quote:
I'll agree with you that it can partially be speculation. But this speculation did not appear out of nowhere. I'm going to argue that what the United States have done in Iraq for years now has a part to play (to sum up, US foreign policy on the Bush jr. era) in this. Now, the speculation if a symptom of outside influences. Something has triggered it. It didn't just happen out of silly (if it did happen out of silly, could you please point me to a major speculative incident in the history that happened out of silly other than mentioned oil crisis, and provide with a case study). I am going to stick to my side and argue that price increases of this side, even if results of speculation, do not simply happen out of nowhere.
Ok I can understand the point you are trying to make, and in that regard it's probably fair that I agree to an extent. You're correct in that (most) investors do not gamble randomly based on no research or evidence, but the point I’m trying to make and made earlier is that investors often invest on questionable evidence and this more or less is blind speculation and jumping the bandwagon. So as per the dot com bust, if an investor sees everyone making lots of money, and if the investor can loosely justify to his backers that there is lots of money to be made (and quite often this justification can be the fact that other people are making lots of money, and that you believe that people will continue to throw money at the market, on top of loose research that the companies invested in will be profitable) he will get the go ahead to invest.

Quote:
Yes. But the 70s case cannot be forgotten when you look for incentives why someone would speculate on oil.
Of course it can't. The market will always price in the assumption that oil supply will be cut. The posturing by Israel on attacking Iran will have been priced into the current oil price. However, once again the point I’m trying to make is that although the above has the effect of increasing the oil price slightly, it isn't the main reason why it is happening at the moment.

Quote:
Have you ever stopped to wonder why oil is in the position it is in today's investment market?
Yes it is a tradable product, just like any commodity that is subject to market forces.

Quote:
What I'm saying is, that the reason the oil prices are volatile in general is the fact that oil has a very recent history and a current strong status of oligopolistic nature (and OPEC behavior generally), which produces a strong incentive to speculate on it. Now, attacking Iraq, and the war stretching longer and longer (one could argue it's still a war zone there) is another incentive. The speculators are grabbing these excisting issues in the oil market and thus attempting to make money of it, causing the prices to increase. Essentially, it's speculating that's resulting in the prices increasing, but if the oil market wasn't already ill to begin with, this would never happen. While we're at it, we could claim that the fact that Iraq was attacked and is still essentially at war must have had some effect on oil supply.
As above, this is just like any form of speculation on a company’s SP. I might speculate on a company’s SP but this has no negative effects on the company even if the price shoots up to a level which grossly overvalues it. Oil, however, like all commodities are consumed and therefore any increases in prices will affect everyone.
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Unread 6 Jul 2008, 11:40   #23
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Re: Food Crisis

Quote:
Originally Posted by Zar
Yes it is a tradable product, just like any commodity that is subject to market forces.
Stopped reading here. I suggest you read the few links I edited in, in case you missed them - particularily the Krugman one.
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Unread 6 Jul 2008, 12:00   #24
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Re: Food Crisis

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Originally Posted by Tietäjä
Stopped reading here. I suggest you read the few links I edited in, in case you missed them - particularily the Krugman one.
I'm sorry. I didn't realise we were in a world where the opinion of one person was considered definitive.

Clearly everyone else has got it wrong.
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Unread 6 Jul 2008, 12:03   #25
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Re: Food Crisis

Of course it's not definitive. Did I claim so? Or are you just intentionally misunderstanding? Is your claim that the oil prices are solely due to stock speculation definitive?
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Unread 6 Jul 2008, 12:10   #26
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Re: Food Crisis

Quote:
Originally Posted by Tietäjä
Of course it's not definitive. Did I claim so? Or are you just intentionally misunderstanding? Is your claim that the oil prices are solely due to stock speculation definitive?
I've never claimed that the current oil prices are solely due to stock speculation.

If you read my build up, i've made it pretty clear that I think it is the main reason, however other factors will always be priced in.
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Unread 6 Jul 2008, 12:18   #27
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Re: Food Crisis

Right. Did you read the links or did you just skip them again? Let me elaborate what I'm saying again and again. On one of them, there's an oil economics specialist stating that the oil prices would be 1/3rd of what they're now if the Iraq war didn't happen.

First, speculation is the symptom, the market mechanism, that adjusts the price, but it's not something that happens standalone in this magnitude. Now, while speculation can create a self-fulfilling prophecy, I doubt this speculation on the oil prices would have happened had the scenario with the Iraq gone different as by Dr. Salameh.


Now, if someone was to believe the opinion of a) a known controversional Princeton professor b) a UN/WTO oil economics specialist or c) an anonymous internet poster who isn't stating any references to his claims, which would be the pick? I'm going to link you another chief-economist text to read here.
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Unread 6 Jul 2008, 12:35   #28
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Re: Food Crisis

Quote:
Originally Posted by Zar
I would venture that the days of cheap oil are over. The world will have to slowly adjust to oil regularly surpassing $100.
...
i've made it pretty clear that I think it is the main reason, however other factors will always be priced in.
Just a question: if the main reason of these price increases has been speculation, will the market simply never realize this or why would the prices regularly surpass $100 in the future too? Again due to speculation?
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Unread 6 Jul 2008, 12:41   #29
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Re: Food Crisis

I cannot be bothered to look at them because I know what they're saying.

Quote:
Originally Posted by Tietäjä
Right. Did you read the links or did you just skip them again? Let me elaborate what I'm saying again and again. On one of them, there's an oil economics specialist stating that the oil prices would be 1/3rd of what they're now if the Iraq war didn't happen.
Yes. And? The Iraq war did happen. The base price has been set. This has little to do with the reasoning behind the rise in oil prices currently. I find your complete inability to look at the present quite disheartening. You're spending far too much time worrying about the history, rather than focusing on what is affecting the present.

Quote:
First, speculation is the symptom, the market mechanism, that adjusts the price, but it's not something that happens standalone in this magnitude. Now, while speculation can create a self-fulfilling prophecy, I doubt this speculation on the oil prices would have happened had the scenario with the Iraq gone different as by Dr. Salameh.
Why bother quoting things that agree with me? My entir arguments has been on the basis that the current speculation, is based on an entirely new set of factors, differing from the past. Why are you continuing to argue about the base price? This Dr Salameh is simply saying that had the Iraq war not happened this speculation would have not happened. Fine, but the Iraq war did happen and the speculation is happening. We're arguing about the speculation, NOT about the base price pre-speculation.

Quote:
Now, if someone was to believe the opinion of a) a known controversional Princeton professor b) a UN/WTO oil economics specialist or c) an anonymous internet poster who isn't stating any references to his claims, which would be the pick? I'm going to link you another chief-economist text to read here.
The reason i've continued this debate is because I am fully willing to accept that there are always two sides to an argument. There are those that believe that the rise in oil prices are to do with speculation, and there are those that believe that speculation has nothing to do with it. I was enjoying a healthy debate. I had no intentions of changing your mind, instead I was more interested in your way of thinking.

I have not posted any links that back my argument of speculation, because I know full well that there are those who do not think it has anything to do with speculation. This is the beauty of an argument. Everyone has an opinion.

However, your continued pursuit in posting these links, and your continuing attempt to try and end your argument based on the rationale of professors who believe in your side of the argument is nothing but unfounded arrogance.

There are always two camps. I'm on the side that backs the theory of speculation, you are on the side that backs that believes otherwise.

However, next time a hedge fund manager calls me - I shall point him to this link and state clearly that I have discovered a person named Tietäjä (who has not even worked in Investment Banking) has come up with the solution and he has provided evidence to support his argument. I'll make it clear to him that all those arguments between the speculative band camp, and the other side have been solved.

Congratulations!
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Unread 6 Jul 2008, 12:55   #30
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Re: Food Crisis

Quote:
Originally Posted by Zar
However, your continued pursuit in posting these links, and your continuing attempt to try and end your argument based on the rationale of professors who believe in your side of the argument is nothing but unfounded arrogance.
No, it's not unfounded arrogance. It's an attempt to express my view broader - I could have simply written what Krugman would say about oil supply, or I could have elaborated more specifically how and why the Iraq war affected oil prices - or why the price increases are about supply-demand side fundaments, but why would I be bothered if it's been well said by people with better lingua than I have? Yes, it's been an interesting discussion - yet what I find highly controversional is, that a person believing that the oil prices are mainly due to speculation can also believe that the high prices are here to stay. It sounds like a hystresis-sort of a phenomenom, but it makes little sense to me.

Quote:
However, next time a hedge fund manager calls me - I shall point him to this link and state clearly that I have discovered a person named Tietäjä (who has not even worked in Investment Banking) has come up with the solution and he has provided evidence to support his argument. I'll make it clear to him that all those arguments between the speculative band camp, and the other side have been solved.

Congratulations!
Now, this is unfounded arrogance and childish bickering. No, I've never worked for an investment bank or in the stock market. I've worked for a sorts of a bank, though, and I still do. At this point I could insert a remark a 7-year-old would come up with about "my daddy against your daddy", but seriously, I don't feel the need to succumb to your level.
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Unread 6 Jul 2008, 15:22   #31
Tomkat
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Re: Food Crisis

succumb more like suckumb am i rite
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Unread 12 Sep 2008, 13:16   #32
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Re: Food Crisis

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Originally Posted by Tietäjä View Post
This is due to the fact that all this time they've been receiving enough money for their needs to ever really "need" more.

I thought it had to do with receiving shells, bullets, bombs and secret operatives
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