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Pixel8r

Why speculative trading is the downfall of the modern world

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There is definitely something very iffy about hedge funds/retail investors being able to buy futures in food commodities or ETFs that invest in pure food products (as opposed to producers).

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I don't believe the actual act of trading is evil, it actually is required to provide goods and services. There obviously would be no economy at all without the ability to trade one thing for another.

 

The problem I think is in the expansion of speculative trading which has come about since TPB got the Glass-Steagall act repealed. So in effect it is the intention of certain agents that make it evil.

 

Yes the current circumstances which have been created are starting to make a system where speculation is the norm, which I feel is acting against the economy as a whole.

 

If the object is not evil, and assuming the agent has a good intention ( if it is bad, you probably wouldn't know / couldn't prove anyway) then the action must be evaluated with respect to the circumstances involved. You need to clearly specify under what circumstances trading should not be engaged in (and why) so that social policy can accomodate. I see you have suggested limitations on futures exchange trading. Surprise, there are already limitations. How are your limitations going to be better? Then you suggested adding a small tax, as if that has no bad effects merely because it is small. I'm not exactly sure what logic has it being acceptable to confiscate money from a willing buyer and seller engaged in an otherwise morally acceptable transaction. If the transaction has a multitude of bad effects that outweigh any good effects, then fine - let the transaction be outlawed for the common good. What good is it to let the transaction (with all the bad effects) happen as long as the government can skim a few bucks off the top?

 

You need to specify more clearly under what circumstances trading is unacceptable (and why) before many people will be convinced by your argument.

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If the object is not evil, and assuming the agent has a good intention ( if it is bad, you probably wouldn't know / couldn't prove anyway) then the action must be evaluated with respect to the circumstances involved. You need to clearly specify under what circumstances trading should not be engaged in (and why) so that social policy can accomodate. I see you have suggested limitations on futures exchange trading. Surprise, there are already limitations. How are your limitations going to be better? Then you suggested adding a small tax, as if that has no bad effects merely because it is small. I'm not exactly sure what logic has it being acceptable to confiscate money from a willing buyer and seller engaged in an otherwise morally acceptable transaction. If the transaction has a multitude of bad effects that outweigh any good effects, then fine - let the transaction be outlawed for the common good. What good is it to let the transaction (with all the bad effects) happen as long as the government can skim a few bucks off the top?

 

You need to specify more clearly under what circumstances trading is unacceptable (and why) before many people will be convinced by your argument.

Nothing I am talking about is the intentions of the investment banks be them good or bad, it is about the results of their actions. I am sure the bankers have the intention of making as much money as possible as always, I am not understanding why you are trying to are trying to put a spiritual slant on this?

 

As clearly as I can say it currently I feel that the rise in speculative trading by the banking elite in derivatives and the development of high frequency trading does nothing to add to the stability, price discovery or liquidity of the market. Derivatives bring instability, fantasy accounting and makes the banks to large to fail and in the case of HFT it leads to increased volatility and increased fees for the actual capital investor.

 

With the current accounting rules all derivative gambles are accounted as winners even if they aren't currently, hence the system as a whole becomes more unstable. The solution to the derivative problem would be to change the accounting standards back to mark to market, but this can't be done as actually most of the banks would be bankrupt. That was what was discovered in 2008 when the FASB changed to mark to market and that started the snowball rolling causing the downfall of Lehmans and AIG, the accounting rule was quickly changed back to mark to fantasy. So we are left in a situation where the banks are encouraged to carry on building these speculative bets between each other and only need to account for them as all winners until the contract ends. By then they have taken new ones and rolled the debt forward, which leads to ever increasing amounts that are being falsely accounted for. The bakers want to get everyone short term trading as they have been, the problem would come as the public would not be able to use the same accounting standards as they are. So in effect the publics production would just feed into the bankers speculative machine, which would serve no purpose other than keeping the snowball rolling. That is why we are seeing the rise in speculative trading products as they benefit the bankers but not the public as a whole, sure there will be the rare few who benefit from speculation but the whole losses in comparison to the bankers.

 

Jesus threw the money changers out of the temple as they where turning it into a den of theives, we need to do the same or do you really believe the antichrist Lloyd Blankfein and Goldman Sacs are doing "god's work"? Don't you see what the bankers are trying to do which is to turn the whole world into money changers rather than productive members of society.

 

The benefit of adding a tax to short term trading would be that the money would help to relive the strain put on the public finances from the bailouts. It would also mean that short term speculative trading became less attractive and it would encourage longterm investment which is required for the greater good. I am not up for the banning of speculative trades but I do think they do need to be taxed at a higher rate. Increasing the tax level for the shorter time an investment is held would encourage investments to be held for longer and the investing of capital would return to it original purpose, which is to provide capital for expansion, research and production. This would also be a way of slowly reshaping the system back to a way that is better for the whole rather than just encouraging the continual build up of leveraged debt.

 

What benefits do speculative trades bring? As far as I can see all they do is remove money from those doing productive things and enhance the bankers balance sheets. I realise that they can provide hedging for an activity, but the more your activities need to be hedged the more money goes to the bankers and the less profit is made from your production. Surely it would be better for people to do activities that where required or fail and move on to something that is. In business It used to be the natural way that the strong survived and the weak failed, but these days the weak continue and the strong are made to pay for them.

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Short term trading isn't the problem - It is illegal and unethical behaviour, often unpunished

 

Let's get the crooks behind bars... as a first step

Matt Taibbi is on the case...

 

At Last: Jury Convicts Financial Criminal, One Down XXX To Go

12 May 2011 ... Matt Taibbi, now has a new piece on The People Versus Goldman Sachs: “The great and powerful Oz of Wall Street was not the only target of ...

 

http://www.newsdissector.com/blog/2011/05/12/at-last-jury-convicts-financial-criminal-one-down-xxx-to-go/

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Short term trading isn't the problem - It is illegal and unethical behaviour, often unpunished

 

 

Matt Taibbi is on the case...

 

At Last: Jury Convicts Financial Criminal, One Down XXX To Go

12 May 2011 ... Matt Taibbi, now has a new piece on The People Versus Goldman Sachs: “The great and powerful Oz of Wall Street was not the only target of ...

 

http://www.newsdissector.com/blog/2011/05/12/at-last-jury-convicts-financial-criminal-one-down-xxx-to-go/

 

 

Raj Rajaratnam was someone who profited from unethical behaviour within a criminal system - much like one of the bag men caught stealing from a crime syndicate. The private central bank that issues imaginary credit - the leech that somehow gets the affectionate diminutive of 'the Fed' is the source of the injustice and theft perpetrated on the people.

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Short term trading isn't the problem - It is illegal and unethical behaviour, often unpunished

Do you think the feds bank goldman sacs would ever have get punished? No they would be just offered a settlement, which is the problem they are too big to fail and can carry on with the crooked trades and pay off any time they get rumbled. The film inside job did a good job of explaining how systemic the corruption was and is.

 

What do you think of the post above and the thoughts I have raised in it, particularly the fantasy accounting of derivatives and the continual rolling forward of the bad debts?

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Just so we're clear here, I'm a long-term investor and tend to agree with you that something is wrong with certain transactions that take place. But I don't think you're doing a very good job at explaining what exactly is wrong.

 

As clearly as I can say it currently I feel that the rise in speculative trading by the banking elite in derivatives and the development of high frequency trading does nothing to add to the stability, price discovery or liquidity of the market. Derivatives bring instability, fantasy accounting and makes the banks to large to fail and in the case of HFT it leads to increased volatility and increased fees for the actual capital investor.

 

 

Stability, price discovery, and liquidity are not the end goals of the market (i.e. human trade.) Just because a transaction doesn't contribute to one of these doesn't mean that it's not contributing to someone's wellbeing.

 

Derivatives can actually add a significant amount of stability if used wisely. The case of the farmer who sells forward a small portion of his crop at a period of high commodity prices is an example. The case of an airline who locks in a portion of their fuel costs at a period of low commodity prices is another example (which our own Southwest Airlines did several years back.) Someone has to take the other side of those trades in order for the benefit to occur.

 

All accounting has some measure of fantasy in it - and your suggested mark-to-market accounting is perhaps the most fantastical of all. Let me give you an example. My own small corporation is insolvent by mark-to-market standards. If you totaled up our assets (accounts receivable, some vehicles, tools, furniture, etc.) according to what we could sell them for at auction, the market value is less than the amount of liabilities that we have (accounts payable, and some long-term debt.) According to mark-to-market, the value of my company is negative and we could legally declare bankruptcy. However, in my humble opinion, the mark-to-market accounting is wrong and my company is actually worth much more than it would appear to be on paper. There are a couple reasons for this. First, the assets we have are worth much more to us than their market value. How can that be? Well - it's quite simple. When I buy a vehicle, it loses 10-20% as soon as I drive it off the lot. I can't replace that vehicle for less than $10k but its market value is only $8k. It's even worse with tools. When I buy a cable analyzer from Fluke, it drops ~50% in market value as soon as I take it out of the box. My laptop has a market value of $500, but without it I lose ~$1000 in revenue per day. To buy a new one, I'd have to spend at least a day to load all my programs and get it functional - ~$1000 in lost revenue for that day. Another reason is earning power over time & the time value of money. My business is insolvent by mark-to-market standards. If I understand you correctly, you would have the insolvent banks (by mark-to-market standards) be shut down by regulators. I would not want my own business shut down - and I doubt our 6 other employees would want it shut down either. This insolvent business feeds 7 families! I say your mark-to-market standards can be shoved up your english arse! It is not my problem that you can't read a bank's balance sheet and understand that their assets and liabilities must be understood in the context of a functioning business that generates earnings over time and not in a snapshot. I can't understand a bank's balance sheet either. That's why I don't invest in them. But I do understand my own balance sheet, and I don't think I need to take lessons from the government on how to get back to solvency.

 

 

Jesus threw the money changers out of the temple as they where turning it into a den of theives, we need to do the same or do you really believe the antichrist Lloyd Blankfein and Goldman Sacs are doing "god's work"?

 

I agree, let's get rid of the thieves. All I'm asking you for is a coherent explanation of how to identify the thief! What are the criteria that should be imposed to make a trade/transaction illegal? It sounds to me like you think the thief should just be taxed and allowed to continue operating!

 

 

In business It used to be the natural way that the strong survived and the weak failed, but these days the weak continue and the strong are made to pay for them.

 

I agree but that has nothing to do with whether or not someone should be engaged in trading. It has everything to do with the government forcing citizens (against absolutely overwhelming public disapproval in the USA) to pay via taxes and inflation for the bailout of their buddies. And you would have more taxes put in place for trades that may be perfectly legitimate and contribute to the well-being of society. I really am having difficulty with your logic.

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...my company is actually worth much more than it would appear to be on paper. There are a couple reasons for this. First, the assets we have are worth much more to us than their market value. How can that be? Well - it's quite simple. When I buy a vehicle, it loses 10-20% as soon as I drive it off the lot. I can't replace that vehicle for less than $10k but its market value is only $8k. It's even worse with tools. When I buy a cable analyzer from Fluke, it drops ~50% in market value as soon as I take it out of the box. My laptop has a market value of $500, but without it I lose ~$1000 in revenue per day. To buy a new one, I'd have to spend at least a day to load all my programs and get it functional - ~$1000 in lost revenue for that day. Another reason is earning power over time & the time value of money. My business is insolvent by mark-to-market standards. If I understand you correctly, you would have the insolvent banks (by mark-to-market standards) be shut down by regulators. I would not want my own business shut down - and I doubt our 6 other employees would want it shut down either. This insolvent business feeds 7 families! I say your mark-to-market standards can be shoved up your english arse! It is not my problem that you can't read a bank's balance sheet and understand that their assets and liabilities must be understood in the context of a functioning business that generates earnings over time and not in a snapshot. I can't understand a bank's balance sheet either. That's why I don't invest in them. But I do understand my own balance sheet, and I don't think I need to take lessons from the government on how to get back to solvency.

I Like your description.

 

But if your business is generating an operating profit, or even just positive cash flow, no one is likely to want to shut it down, and force you to liquidate.

 

The business assets are allowing you to transform for business knowhow and human effort into products that you can sell at a profit.

 

That is a different business model, than buying an asset and betting its price will rise. That is what many here are doing with their gold and silver investments. And the fact that they paln to "hold for the long term" makes the effort no less "speculative" IMHO.

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Just so we're clear here, I'm a long-term investor and tend to agree with you that something is wrong with certain transactions that take place. But I don't think you're doing a very good job at explaining what exactly is wrong.

I am glad to hear it and thanks for the help in developing my idea, writing is not my strong point I failed english O level twice (while gaining 10 other ones), so it sometimes takes me a bit of time to get my thoughts down clearly.

 

Stability, price discovery, and liquidity are not the end goals of the market (i.e. human trade.) Just because a transaction doesn't contribute to one of these doesn't mean that it's not contributing to someone's wellbeing.

I realise that someone is benefiting from a trade, but I am questioning the way the system is set is not of benefit to the whole.

 

Derivatives can actually add a significant amount of stability if used wisely. The case of the farmer who sells forward a small portion of his crop at a period of high commodity prices is an example. The case of an airline who locks in a portion of their fuel costs at a period of low commodity prices is another example (which our own Southwest Airlines did several years back.) Someone has to take the other side of those trades in order for the benefit to occur.

 

All accounting has some measure of fantasy in it - and your suggested mark-to-market accounting is perhaps the most fantastical of all. Let me give you an example. My own small corporation is insolvent by mark-to-market standards. If you totaled up our assets (accounts receivable, some vehicles, tools, furniture, etc.) according to what we could sell them for at auction, the market value is less than the amount of liabilities that we have (accounts payable, and some long-term debt.) According to mark-to-market, the value of my company is negative and we could legally declare bankruptcy. However, in my humble opinion, the mark-to-market accounting is wrong and my company is actually worth much more than it would appear to be on paper. There are a couple reasons for this. First, the assets we have are worth much more to us than their market value. How can that be? Well - it's quite simple. When I buy a vehicle, it loses 10-20% as soon as I drive it off the lot. I can't replace that vehicle for less than $10k but its market value is only $8k. It's even worse with tools. When I buy a cable analyzer from Fluke, it drops ~50% in market value as soon as I take it out of the box. My laptop has a market value of $500, but without it I lose ~$1000 in revenue per day. To buy a new one, I'd have to spend at least a day to load all my programs and get it functional - ~$1000 in lost revenue for that day. Another reason is earning power over time & the time value of money. My business is insolvent by mark-to-market standards. If I understand you correctly, you would have the insolvent banks (by mark-to-market standards) be shut down by regulators. I would not want my own business shut down - and I doubt our 6 other employees would want it shut down either. This insolvent business feeds 7 families! I say your mark-to-market standards can be shoved up your english arse! It is not my problem that you can't read a bank's balance sheet and understand that their assets and liabilities must be understood in the context of a functioning business that generates earnings over time and not in a snapshot. I can't understand a bank's balance sheet either. That's why I don't invest in them. But I do understand my own balance sheet, and I don't think I need to take lessons from the government on how to get back to solvency.

There is a big difference in mark-to-market accounting for financial assets and general business ones. I agree that mark-to-market doesn't make sense for a lot of businesses but they operate within their means and haven't become too big to fail and require bailing out at tax payers expense. You will see from above that I do think that derivative serve some purpose in they allow a business to hedge, in your instance a farmer hedges his crop. If the market then falls it doesn't explain why the bank should be allowed to account for it as if it hasn't.

 

I do believe that financial businesses need to operate on make-to-market accounting otherwise they can just keep expanding and rolling forward the debt. Also a financial asset is just that something has a certain value and can be traded. Currently a derivative is born, say linked to a certain loan performing, when the loan in question doesn't perform before the contract has finished I think it should be accounted as the contract is worthless. Currently they aren't because the contract still has time to run, so in effect it is still counted on the investment banks book as worth the book amount. There are loads of subprime mortgages with CDO's written against them, these have been bought by the fed at their full value as if they have preformed correctly, even though the underlying subprime mortgage has gone into default. In the mean time this is still reported on the feds books as having value when in effect it is worthless. The same is true for loads of banks that haven't shifted their toxic derivatives off to the fed. Those banks are writing more and more derivative contracts so are in effect rolling the debt forward rather than accounting for the loss. This ends up making these banks have massive amounts of over accounted bad debt on their books while still being able to increase it further. So the whole system gets more and more unstable as it is being accounted for incorrectly, which in turn leads them to become even more 'to big to fail'.

 

I agree, let's get rid of the thieves. All I'm asking you for is a coherent explanation of how to identify the thief! What are the criteria that should be imposed to make a trade/transaction illegal? It sounds to me like you think the thief should just be taxed and allowed to continue operating!

 

I agree but that has nothing to do with whether or not someone should be engaged in trading. It has everything to do with the government forcing citizens (against absolutely overwhelming public disapproval in the USA) to pay via taxes and inflation for the bailout of their buddies. And you would have more taxes put in place for trades that may be perfectly legitimate and contribute to the well-being of society. I really am having difficulty with your logic.

The fact is that certain market participants are being allowed to run their books in a way which is bring down the country as a whole. It is due to the size of the total amount of debt they are being allowed to get themselves into and the fact that is is just allowed to keep increasing. If a general business operated in the same way they would run into a situation where they ran out of people willing to lend them money and they would go bust. As the large banks are too big to fail they are aloud to just continue racking up the debt and rolling it forward like the western governments are doing, when things come on top the public is asked to bail them out, this is not what happens in general business.

 

Here is a video from Jack Bogle from Jan 2010 which is him talking about what I am trying to talk about here, he does a lot better job of explaining thins than me. Please watch this as it clarifies what I am trying to explain;

 

http://video.foxbusi...ut-shareholders

 

I used to have the full version of this video as a link on youtube, but someone has made it private. The above appears to have been cutoff around halfway through. But you will still get the idea.

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That is what many here are doing with their gold and silver investments. And the fact that they paln to "hold for the long term" makes the effort no less "speculative" IMHO.

That is because you are viewing gold and silver purchases as an investment, as I have explained above I do not think they are. How can it be called speculating converting your money into the oldest form of money that pays no interest? People are moving to keeping their capital in gold and silver rather than fiat currencies because fiat currencies are being devalued and are a stupid place to keep your money, as your purchasing power would just dwindle. Think of people who buy gold and silver as people who are storing the purchasing power because they don't want to buy or invest in anything at the moment.

 

Surely you can see the difference between an investor putting money into an investment for the long term and one trading in and out of something. The investor who is providing long term funds is providing the capital to help with a project. In the extreme example of trading of say a high frequency one what are they doing? They are staying in an financial asset for an extremely short amount of time and hoping to remove profit from it, which in effect is removing money from the assets value, this doesn't help with the development of the project that required funding it actually hinders it in making their project worth less.

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That is because you are viewing gold and silver purchases as an investment, as I have explained above I do not think they are. How can it be called speculating converting your money into the oldest form of money that pays no interest? People are moving to keeping their capital in gold and silver rather than fiat currencies because fiat currencies are being devalued and are a stupid place to keep your money, as your purchasing power would just dwindle. Think of people who buy gold and silver as people who are storing the purchasing power because they don't want to buy or invest in anything at the moment.

 

Surely you can see the difference between an investor putting money into an investment for the long term and one trading in and out of something. The investor who is providing long term funds is providing the capital to help with a project. In the extreme example of trading of say a high frequency one what are they doing? They are staying in an financial asset for an extremely short amount of time and hoping to remove profit from it, which in effect is removing money from the assets value, this doesn't help with the development of the project that required funding it actually hinders it in making their project worth less.

 

 

This is the point that some here fail to grasp - gold stores purchasing power over long periods of time with no risk and is hence NOT an investment. Interestingly, because of this fact, the desirability of gold increases at times of uncertainty and upheaval and hence its purchasing power increases - leading some to misunderstand the increase as a bubble or something to 'invest' in.

 

This temporary (some years) increase in purchasing power can be a benefit for those that acquired gold before the systemic problems in the West became obvious - indeed, even now, gold acquired will increase its purchasing power significantly in the next few years.

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This is the point that some here fail to grasp - gold stores purchasing power over long periods of time with no risk and is hence NOT an investment.

 

Can you clarify, do you really mean what you say here? No risk?

 

On a scale with 0 meaning no risk and 100 meaning complete risk, where are you?

 

Also from Wiki;

 

Speculation

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money for the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.[1]

 

In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is commonly used to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is technically not investment, but speculation.

 

Most here are speculators then, of course investment has a better ring to it doesn't it.

 

If you don't mind me saying Pixel8r I think you are seeing in others something you see in yourself.

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I realise that someone is benefiting from a trade, but I am questioning the way the system is set is not of benefit to the whole.

 

 

Let's look at a post hyperinflation world with a gold standard. I would imagine that the disparity of wealth will be even more acute than it is now. By buying gold and therefore encouraging this outcome are you not participating in an investment/speculation/trade that could potentially lead to greater poverty as many will lose everything they have and only the few will be very wealthy. Do you think it's possible that scenario could be worse for the world as a whole?

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Let's look at a post hyperinflation world with a gold standard. I would imagine that the disparity of wealth will be even more acute than it is now. By buying gold and therefore encouraging this outcome are you not participating in an investment/speculation/trade that could potentially lead to greater poverty as many will lose everything they have and only the few will be very wealthy. Do you think it's possible that scenario could be worse for the world as a whole?

I don't think so because the work of the common man would then be rewarded with a currency that held it's value, rather than his work being rewarded with a currency that the government steals via inflation.

 

Something needs to done to stop the theft of the common mans handwork via inflation and rampant money printing. A gold standard would mean that there would be periods of real deflation again but the work a man had done would always be worth a constant. At the moment for the work a poor man does he is given if given a fiat currency which doesn't hold it's buying power, so in effect he is forced to go and spend it rather than saving for a better future.

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In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is commonly used to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is technically not investment, but speculation.

 

Most here are speculators then, of course investment has a better ring to it doesn't it.

 

If you don't mind me saying Pixel8r I think you are seeing in others something you see in yourself.

You are confusing buying physical gold or silver with an investment you do not swap money into them because they are a financial vehicle, you do so because they are the oldest form of money that can't be debased. Gold and silver are money they aren't an investment, I have always said that I treat my holdings of physical gold and silver as my cash position rather than an investment.

 

I agree I am an investor in mining stocks, but I don't think I am a speculator. My investments in mining equities are usually held for many years rather than days or weeks. The stock that I sold some of recently (GPR) was bought in Jan '09, I have taken some profits to free up some cash for other investments into miners, so my last sale was a stock that I had held for 2 years which doesn't seem like speculation to me.

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Can you clarify, do you really mean what you say here? No risk?

 

On a scale with 0 meaning no risk and 100 meaning complete risk, where are you?

 

Also from Wiki;

 

Speculation

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money for the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.[1]

 

In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is commonly used to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is technically not investment, but speculation.

 

Most here are speculators then, of course investment has a better ring to it doesn't it.

 

If you don't mind me saying Pixel8r I think you are seeing in others something you see in yourself.

 

Ok, there are no absolutes but the risk from theft, loss, natural disasters etc would be extremely small for a cautious person - the risk cannot be quantified because of the variables but most importantly, there is no counter-party risk

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Or you could please both camps and call the site " Global Investment Traders" or GIT for short. This has a better ring to it....

 

Great thread pix. I have long thought that he economic system of this world is not compatible with the natural world, peace and prosperity for all.

I wonder if DrBubb has done any longterm investments into green energy as the domain name implies? If he has you would think he would be stocking up on physical silver, I hear that it is heavily required in the manufacture of solar panels.

 

False advertising IMO, the domain for this site should be Global Edge Traders (GET) or Global Investment Traders (GIT) as you suggest. laugh.gif

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[...]

 

Also from Wiki;

 

Speculation

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money for the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.[1]

 

In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is commonly used to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is technically not investment, but speculation.

 

Most here are speculators then, of course investment has a better ring to it doesn't it.

[...]

 

Thanks for providing a definition, that's very useful!

 

I'm not sure I fully agree with the wiki definition, though.

 

Firstly, I don't think there is any type of investment where the principal is completely safe (at least that's how I understand the definition as provided above). For instance, I placed some money into a closed fund a while back that supports biogas plants and wind farms, and I shall leave the money in there for six years. Of course, I did this after trying to analyse possible returns and safety of my principal. However, I still think there is a degree of risk involved there: the administrative company could disappear, a natural catastrophe could wipe out the plants, the currency could go into hyperinflation etc. etc. - there is no such thing as absolute safety!! There is an element of speculation in here as well.

 

Secondly, I don't think you typically need to borrow or lend (it's not quite clear which of the two is meant in the definition above) to be a speculator: if on the 11 or 12 March 2011 I expected green energy stocks to rise and nuclear/uranium stocks to drop and if I bought/sold shares accordingly and held for a week that would, in my book, be speculation even if I did not borrow any money.

 

To sum up: maybe it is not possible to separate the two entities (speculation/investment) completely... in my book, the element of time I hold something would be part of the distinction but also whether the return of the employed capital stems from yield (i.e. interest, dividends, rent) or asset price gains. The former would rather be investment, the latter rather be speculation.

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Just so we're clear here, I'm a long-term investor and tend to agree with you that something is wrong with certain transactions that take place. But I don't think you're doing a very good job at explaining what exactly is wrong.

 

Stability, price discovery, and liquidity are not the end goals of the market (i.e. human trade.) Just because a transaction doesn't contribute to one of these doesn't mean that it's not contributing to someone's wellbeing.

 

Derivatives can actually add a significant amount of stability if used wisely. The case of the farmer who sells forward a small portion of his crop at a period of high commodity prices is an example. The case of an airline who locks in a portion of their fuel costs at a period of low commodity prices is another example (which our own Southwest Airlines did several years back.) Someone has to take the other side of those trades in order for the benefit to occur.

 

All accounting has some measure of fantasy in it - and your suggested mark-to-market accounting is perhaps the most fantastical of all. Let me give you an example. My own small corporation is insolvent by mark-to-market standards. If you totaled up our assets (accounts receivable, some vehicles, tools, furniture, etc.) according to what we could sell them for at auction, the market value is less than the amount of liabilities that we have (accounts payable, and some long-term debt.) According to mark-to-market, the value of my company is negative and we could legally declare bankruptcy. However, in my humble opinion, the mark-to-market accounting is wrong and my company is actually worth much more than it would appear to be on paper. There are a couple reasons for this. First, the assets we have are worth much more to us than their market value. How can that be? Well - it's quite simple. When I buy a vehicle, it loses 10-20% as soon as I drive it off the lot. I can't replace that vehicle for less than $10k but its market value is only $8k. It's even worse with tools. When I buy a cable analyzer from Fluke, it drops ~50% in market value as soon as I take it out of the box. My laptop has a market value of $500, but without it I lose ~$1000 in revenue per day. To buy a new one, I'd have to spend at least a day to load all my programs and get it functional - ~$1000 in lost revenue for that day. Another reason is earning power over time & the time value of money. My business is insolvent by mark-to-market standards. If I understand you correctly, you would have the insolvent banks (by mark-to-market standards) be shut down by regulators. I would not want my own business shut down - and I doubt our 6 other employees would want it shut down either. This insolvent business feeds 7 families! I say your mark-to-market standards can be shoved up your english arse! It is not my problem that you can't read a bank's balance sheet and understand that their assets and liabilities must be understood in the context of a functioning business that generates earnings over time and not in a snapshot. I can't understand a bank's balance sheet either. That's why I don't invest in them. But I do understand my own balance sheet, and I don't think I need to take lessons from the government on how to get back to solvency.

[...]

 

In addition to Pix' and DrBubb's responses I'd like to add that your description above of how derivatives are being used to enable sellers and buyers to ensure a future price of a commodity down to line is exactly why I believe futures exchanges were founded in the first place! It's just that it seems to me that fewer and fewer futures exchange and derivatives transactions are actually carried out with the purpose of actually trading the commodity for real, and that's what I (and probably pix) perceive to be a problem.

 

What we probably all agree upon is the fact that money has moved far, far away from being a medium of exchange and a store of wealth to becoming a leveraged tool that feeds an overinflated financial industry that (beyond providing the means for the above which they should do) contributes nothing to society as a whole (and I'm saying this being very much aware that I employ some of their tools to make some financial gains...)

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That is because you are viewing gold and silver purchases as an investment, as I have explained above I do not think they are. How can it be called speculating converting your money into the oldest form of money that pays no interest?

I know what you mean, of course.

 

But I have news for you: Gold and Silver are not legal tender (yet) in most countries.

 

You cannot eat them, and so if you are going to buy food, energy, or other essentials, then you will need to convert them into currency, so you can spend them.

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I know what you mean, of course.

 

But I have news for you: Gold and Silver are not legal tender (yet) in most countries.

 

You cannot eat them, and so if you are going to buy food, energy, or other essentials, then you will need to convert them into currency, so you can spend them.

Strangely enough that isn't news to me, of course they have to be converted to fiat to spend anywhere. Unless you can trade it for a good directly or find a supplier who is will to take a goldmoney payment.

 

The SAS each carry a few emergency sovereigns in their belts, why do you think that is? It is because gold is the only international currency that is excepted everywhere.

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.

I am not sure I get your point?

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I am not sure I get your point?

 

It's a full stop not a point <_< .

 

I just messed up a post and replaced it with another - although I seem to be invisible to most posters here so a full stop is probably as good!

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Strangely enough that isn't news to me, of course they have to be converted to fiat to spend anywhere. Unless you can trade it for a good directly or find a supplier who is will to take a goldmoney payment.

 

The SAS each carry a few emergency sovereigns in their belts, why do you think that is? It is because gold is the only international currency that is excepted everywhere.

If you buy Gold and Silver, you are speculating that you will get a better price in your "spending currency"

when you convert them back. That is my point.

 

They have been rising along with other essential commodities (like food and energy), but if monetary policy shifts, or deflation appears, then you may find that your speculative strategy has not worked.

 

There is no "magic" residing in precious metals, the "magic" has been in the Fed's aggressive monetary policy.

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