Wednesday, February 08, 2006

Markets and Institutional Investment

Both Oil and Base Metals are on a wild swing again--at a time both are still overpriced in terms of Production Costs for Extraction and Distribution. Everyone knows where the distortion comes from, which happens to be Institutional investment plunging. Institutional investment operates according to investment models, with integral Call signs for Selling and Buying. The trouble, here, lies in Call signs being based upon previous Market patterns of short duration--most of the time of less than 18 months. Long-term trends alter the Call signs, while their usage artifically pegs Market pricing (not based on actual Market conditions).

How does Regulators or Markets counter such inappropriate Market positioning?

Truth states there is little to be done without Regulation. The most effective method is requiring license to participate in the Markets, which places a premium on simple speculation in the Products. Licensing Costs would be low in Cost for actual users of the Materials or Products, as they have a defined End-use for the materials, while licensing Costs for non-actual users would be based on a Percentage-Charge on resale of the Product. Extractors of Materials would also need license, but possess freedom from license charge, with proof of actual extraction of the materials by Billing Lists.

Is it time for more Regulation and Fee Payments?

This can only be determined by assessment of the additional Costs to Production Consumers, over and above the Suppliers' actual Production Costs. No Economic studies currently concentrate on the cost of Speculators in the Market, and their effect on the Production Costs of End-Users of the Product. Most Economists, as well as Everyone else, cannot today easily identify the magnitude of these Costs. They should be able to do so, as such Speculation should provide at least a Ten percent return on Investment. lgl

1 comment:

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