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is it really worth it?
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is it really worth it?

  #81 (permalink)
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whatnext View Post
Game theory applied to political science is a fascinating topic Fat Tails. I saw an incredible presentation by Bruce Bueno De Mesquita where his computer program (focused largely on self interest dictating decision making) calculated that Iran would get a nuke but not use it. He wrote a book called "The Logic of Political Survival" that, if anything like his speech, will be great for those who have a mind for game theory.

I wonder how the political representation of a country would come into play under game theory for your idea of highly regulating (Americans need to be informed not "tamed") an aspect of life as important as personal transportation.

In the 70's America made the best "affordable" cars in the world. Then there was year after year of emissions regulation adjustment that literally made them start from scratch. Some people worth listening to know of US politicians, who were heavily invested in Japanese car makers using motorcycle engines at the time, but now they dominate the US market. Mean while, many American made cars in the 90's proved heavier isn't always safer; it's where the car caves in on impact.

In the 2000's Bush offered tax breaks for gas guzzlers and some people worth listening to feel he benefited greatly.

Maybe both examples are a partial result of our dependence of foreign bond buyers and it was an issue of shorter term foreign dependence leading to longer term. Still there are a lot of questions as to how the restrictive "cooperative strategies" would be decided on and to what benefit.

Do you know of a game theory stand out who focuses on investing?

On a side note, maybe it's a matter of different definitions, but how are you or any of us not a speculator?


I think here is a misunderstanding. Cooperative strategies are not restrictive. Cooperative strategies will evolve by themselves, because those who follow them will gain an advantage over those who do not.

Let us say the democracy is a cooperative strategy, as opposed to dictatorial power, which is based on defection. The dictator typically exploits an economic good for his own benefit at the detriment of other citizens. In the longer term, that is under conditions where the game is played repeatedly, dictatorship - as it only represents a temporarily stable state of affairs such as a local extremum - will be overcome, as the total outcome is always unsatisfactory for the common development.

Behavioral norms such as the convictions of the Puritans, laws or regulation can speed up the process of cooperation. So I am not asking for restriction, but for regulation. A regulated marketplace enforces cooperation and at the same time facilitates competition, where it is wanted and needed.

Competition sometimes leads to Pareto optimality, and sometimes it does not. The owners of gas guzzlers are not charged for the negative impact of these cars on the environment. This is not accounted for in the market mechanism. This is known as the tragedy of the commons. Behind the tragedy of the commons, which designs the ruthless exploitation of resources belonging to everyone is a simple prisoner's dilemma. Those who exploit the commons gain an individual advantage by causing greater damage for the group.

Regulation is needed to integrate the cost of exploiting the commons. The defection - buying a gas guzzler - must be sanctioned by higher taxes or other rules. After all, I could not imagine any commercial soccer game without an arbiter who enforces the rules of the game.

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  #82 (permalink)
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Thanks for your detailed reply.

I see democracy as the socialization of violence more than a cooperative strategy.

Couldn't agree more about the need for regulation, or love of that frustrating social experiment; democracy.

Some people feel that private international corps are now in a position to say "give us what we want or your system crashes". This would significantly impair the intended function of elected representatives IMHO.

My understanding of a speculator is someone who takes risks when they think the odds are in their favor.

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  #83 (permalink)
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"Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise.

Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time."


Sir Winston Churchill, Hansard, November 11, 1947
British politician (1874 - 1965)

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  #84 (permalink)
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kbit posted that link. hope she/he don't mind if I post it here as well:

Howard Schultz: The Commodity Rally Is Fake

what a smart man. think I'll go and get a starbucks coffee.

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  #85 (permalink)
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here are some interesting developments:

Tea party godfather Ron Paul running for president - Yahoo! News

ron paul running for president (he might just be the one we need). and of course that he favors the US to return to the gold standard. that would make the usd really happy.

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  #86 (permalink)
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Silvester17 View Post
...gamers are to blame for the oil crisis!

...There are starving children because gamers drive up food prices, the global economy will once again slipping into recession because the same gamers play on the oil market. When the politicians finally realize that it is high time to curb the excessive speculation.

Silvester17,

Thanks for the post. I'm very late to this thread, but I'll toss in my two cents.

I've had this debate with more than a few people (some of them oil traders) over the past eight years and the results always tend to be the same. Oil traders believe that what they are doing facilitates the transitory connection between basic wholesale and fundamental retail demand, while the activists believe that what the traders are doing facilitates higher retail prices across the board for the consumer. I believe the activists are closer to the truth.

The U.S. receives the bulk of its petroleum from both Canada and Mexico, with the remainder coming mostly from OPEC sponsors and our own reserves. Yet, when war breaks out in the Middle East, prices at the pump from the U.K. all the way back to the U.S., start to rise commensurately, while prices in places like Hugo Chaves' Venezuela, and Filepe Calderon's Mexico, the consumers don't experience the same negative drawbacks at the pump to anywhere near the same degree (of course, their cost per gallon was already much lower to begin with for certain). Unlike most other increases in global commodities prices, when crude increases in price, it increases disproportionately (almost across the board) in developed nations in most situations. There are some regional spots around the world where that increase is felt severely by under-developed nations, but for the most part the axiom holds true.

What I think it being missed in much of this thread thus far, is the extensible negative impact that sharply rising oil prices on the exchanges, has not just "at the pump," but within the entire economic framework of some countries. When prices rise (for example) here in the U.S., the impact is systemic and felt nationwide in most cases. It impacts not only the retail fuel prices, but consumer prices as well. The cost of goods begin to increase, because the Number #1 mode of delivery for the companies that produce those goods, is some form of national transportation. The transportation infrastructure utilizing air and land transports, will assume a higher cost of the very thing that makes their businesses possible, fuel. So, it costs more to move product from its source to its destination, for distribution into the national economy. This is part of the reason why we see ridiculous prices not only at the pump for our fuel, but also at the grocery store, furniture store and all retail outlets that warehouse and stock consumable and durable goods.

These are all contributory factors to inflation and for an economy that is undergoing severe economic recession (some say we are in a form of depression), this does nothing but prolong the systemic economic pain and it makes it that much more difficult to restart the various economic engines that are necessary to reduce the unemployment rate and revitalize the Middle Class. There aren't too many examples around the developed world where the economy remains strong for extended periods of time, coupled with a persistently suppressed economic Middle Class that can't find work and that is continually being beaten down by rising prices across the board.

So, in a Global Economy that is suppressed by rising prices, many of them coming as a direct result of increasing fuel prices, I 100% agree with you that it is high time for our policy makers to seriously sit down with each other and their constituents, to layout the considerations and the methodologies for de-listing oil and oil related contracts from the exchanges. But, this will never work unless it is a concerted effort by the G7, in my personal opinion. However, the United States is a powerful G7 member and its motions carry a lot of weight.

The primary reason for doing this? Oil has long since become too strategic a commodity, for it to be "toyed" with on the exchanges by traders, regardless of their contract size or location around the world. Our economy and that of many nations have become inextricably tied to oil and continued whipsawing price fluctuations and unnatural price instability, will cause long-term negative side effects in too many other areas of the associated economy. For these reasons, I have been a long time advocate for the removal of all oil contracts from the traded financial markets. Of course, opponents of such a measure claim that oil speculators don't cause rising prices at the pump and they never talk about or substantively discuss the other strategic extensions that rising fuel prices have on the broader economy. But, those same opponents can never explain the "coincidence" in rising fuel prices in the U.S., when oil breaks out in the Middle East and when the United States does not receive its lion share of petroleum from Middle Eastern sources.

Good post and I agree with the overall premise. I also wanted to highlight some of the strategic economic issues that go beyond the mere "rise at the pump" and that have far more negative impact on already struggling economies, regardless of their size and scale. The more connected the economy is to the world, the more negative the impact will be when oil prices begin to rise, for a host of extensible reasons - some of which I have outlined above.

Of course, this unleashes with tremendous force, the absolute necessity to transition away from fossil fuel based sources of energy, and to concentrate the nation's efforts on designing, building and maintaining an economy based on new energy profiles that call for massive reductions in oil based drivers of the economy. Ideally, that's another thread altogether.

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  #87 (permalink)
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JetTrader View Post
Silvester17,

Thanks for the post. I'm very late to this thread, but I'll toss in my two cents.

I've had this debate with more than a few people (some of them oil traders) over the past eight years and the results always tend to be the same. Oil traders believe that what they are doing facilitates the transitory connection between basic wholesale and fundamental retail demand, while the activists believe that what the traders are doing facilitates higher retail prices across the board for the consumer. I believe the activists are closer to the truth.

The U.S. receives the bulk of its petroleum from both Canada and Mexico, with the remainder coming mostly from OPEC sponsors and our own reserves. Yet, when war breaks out in the Middle East, prices at the pump from the U.K. all the way back to the U.S., start to rise commensurately, while prices in places like Hugo Chaves' Venezuela, and Filepe Calderon's Mexico, the consumers don't experience the same negative drawbacks at the pump to anywhere near the same degree (of course, their cost per gallon was already much lower to begin with for certain). Unlike most other increases in global commodities prices, when crude increases in price, it increases disproportionately (almost across the board) in developed nations in most situations. There are some regional spots around the world where that increase is felt severely by under-developed nations, but for the most part the axiom holds true.

What I think it being missed in much of this thread thus far, is the extensible negative impact that sharply rising oil prices on the exchanges, has not just "at the pump," but within the entire economic framework of some countries. When prices rise (for example) here in the U.S., the impact is systemic and felt nationwide in most cases. It impacts not only the retail fuel prices, but consumer prices as well. The cost of goods begin to increase, because the Number #1 mode of delivery for the companies that produce those goods, is some form of national transportation. The transportation infrastructure utilizing air and land transports, will assume a higher cost of the very thing that makes their businesses possible, fuel. So, it costs more to move product from its source to its destination, for distribution into the national economy. This is part of the reason why we see ridiculous prices not only at the pump for our fuel, but also at the grocery store, furniture store and all retail outlets that warehouse and stock consumable and durable goods.

These are all contributory factors to inflation and for an economy that is undergoing severe economic recession (some say we are in a form of depression), this does nothing but prolong the systemic economic pain and it makes it that much more difficult to restart the various economic engines that are necessary to reduce the unemployment rate and revitalize the Middle Class. There aren't too many examples around the developed world where the economy remains strong for extended periods of time, coupled with a persistently suppressed economic Middle Class that can't find work and that is continually being beaten down by rising prices across the board.

So, in a Global Economy that is suppressed by rising prices, many of them coming as a direct result of increasing fuel prices, I 100% agree with you that it is high time for our policy makers to seriously sit down with each other and their constituents, to layout the considerations and the methodologies for de-listing oil and oil related contracts from the exchanges. But, this will never work unless it is a concerted effort by the G7, in my personal opinion. However, the United States is a powerful G7 member and its motions carry a lot of weight.

The primary reason for doing this? Oil has long since become too strategic a commodity, for it to be "toyed" with on the exchanges by traders, regardless of their contract size or location around the world. Our economy and that of many nations have become inextricably tied to oil and continued whipsawing price fluctuations and unnatural price instability, will cause long-term negative side effects in too many other areas of the associated economy. For these reasons, I have been a long time advocate for the removal of all oil contracts from the traded financial markets. Of course, opponents of such a measure claim that oil speculators don't cause rising prices at the pump and they never talk about or substantively discuss the other strategic extensions that rising fuel prices have on the broader economy. But, those same opponents can never explain the "coincidence" in rising fuel prices in the U.S., when oil breaks out in the Middle East and when the United States does not receive its lion share of petroleum from Middle Eastern sources.

Good post and I agree with the overall premise. I also wanted to highlight some of the strategic economic issues that go beyond the mere "rise at the pump" and that have far more negative impact on already struggling economies, regardless of their size and scale. The more connected the economy is to the world, the more negative the impact will be when oil prices begin to rise, for a host of extensible reasons - some of which I have outlined above.

Of course, this unleashes with tremendous force, the absolute necessity to transition away from fossil fuel based sources of energy, and to concentrate the nation's efforts on designing, building and maintaining an economy based on new energy profiles that call for massive reductions in oil based drivers of the economy. Ideally, that's another thread altogether.

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hey JetTrader,

thank you for your excellent post.

very true about the impact not only seen "at the pump". made also some comments about higher prices for daily bread and milk because of increasing oil prices in another thread.

thanks again for your inside.

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  #88 (permalink)
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The rise in oil prices up to 2008 had a lot to do with conventional oil production reaching what will probably turn out to be its all time peak in 2006 while global demand was surging ahead.

Then came the financial crisis. Caused in part by home owners being pushed into default by higher oil prices straining there budgets. That made current and future global oil demand look a lot weaker.

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  #89 (permalink)
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Silvester17 View Post
this is for CL traders. sorry for the bad (google) translation. just hope everybody trading CL understands the consequences that are involved.



gamers are to blame for the oil crisis!




The fuel prices blow from high to high, and everywhere is a guilty looking. Currently, it is easy to blame North Africa as a price driver identify the. But is it really that easy?


Definitely not. Libya, with just 2 percent to world oil production. Even if oil supplies from Libya would fail completely, it would be easy for other oil-producing countries - especially Saudi Arabia - to fill this gap. To date, nowhere is an oil tanker had not been supplied and there is no refinery was shut down for lack of oil supplies.


From an oil shortage can therefore be no question at all. Why then the price rises to new highs every day?


The explanation is already - as in the exploding food prices - for the speculators. The price of oil, the oil producers are selling a black gold to a refinery, is based on the price of the futures exchanges. Here transactions are concluded on the future.


It may well be useful today to negotiate a set price for a lot of oil in a few months. So both sides calculate their businesses better. But this legitimate interest today makes less than 10 percent of the revenue from in these futures markets.


Over 90 percent of businesses are pure bets by speculators.


You bet that oil will be more expensive tomorrow than today and therefore buy oil contracts on the futures exchanges without an interest to ever get oil delivered. Thus, naturally rises through the purchases of speculators, the price of oil right after the top.


In recent months, especially a lot of speculative money flowing into commodities. The investors do not trust the government bond no more and invest their money in "real values". That is the reason for the skyrocketing prices of food, copper, iron, and just as oil.




Each argument is then legally to justify further price rises. Here come the turmoil in North Africa just right and attract additional stakes in the oil market.


What excesses can still accept it is still completely open. The oil and thus the price of petrol can in a whole new level vanish, but it can also break down completely within a few weeks in itself.


Exactly what has happened once before in 2008. The barrel of oil climbed speculation driven in a short time to over U.S. $ 140. The arguments then were much like today. Sometimes there are hurricanes, sometimes attacks on Nigerian pipelines, other times the huge demand from China.


But then oil prices collapsed in a very short time to as little as $ 40. What had happened?


The speculators had resolved their bets. The global economy is threatened by these massive price escapades and negligence. A few years ago, when oil prices averaged U.S. $ 32 was, said the economists ". The price of oil should ever rise above U.S. $ 60 per barrel, would be the collapse of the global economy," We now are well over $ 100, and the consequences are not yet clear.


There are starving children because gamers drive up food prices, the global economy will once again slipping into recession because the same gamers play on the oil market. When the politicians finally realize that it is high time to curb the excessive speculation.


Not speculation per se is bad, but the magnitude that it has adopted. Real offer from producers, and real demand from consumers should determine prices. Not bets. If the football betting the gambler determine the result, is the prosecutor. If betting on the stock market determine the development of the real economy, obviously no one cares.

I'm not sure where I read this, or even if it is actually true, but my understanding is that the biggest business in the world, is TRADING. If that is true, and when you think of the dollars that change hands every second of every trading day it makes sense, then what impact does that have on the overall economy? Is the game of speculation the largest economic engine? Without it, what would happen?

From the end user perspective, prices will govern themselves, eventually. If the price of crude creates enough pain, nearly regardless of supply & demand, futures prices will come down as speculators start to see the potential trouble ahead. And that could drive crude back to $40 or below.

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  #90 (permalink)
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GaryD View Post
...
From the end user perspective, prices will govern themselves, eventually. If the price of crude creates enough pain, nearly regardless of supply & demand, futures prices will come down as speculators start to see the potential trouble ahead. And that could drive crude back to $40 or below.

not if GS rents more oil tankers and holds them off the market.

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