The futures markets are always running ahead of the Cash markets–never behind; what does this tell Us about the markets themselves? One has to ask who makes the most from the futures. There is a Pro-rate subsidy for Farmers to entice them to accept futures contracts, estimating they can fulfil the Contracts without loss to themselves. The new Speculators come in with back-pressure Cash which they no longer wish to invest in Stocks, Bonds, or any of the new commercial deriatives; bringing a lot of Cash to the Commodity markets, without a great concentration on Market pricing in markets relatively unknown to themselves. Then there is the deriative-writers themselves, who just happen to be the actual floor Trader firms, that must have Farmer participation to gain the new Speculation Cash coming into the markets. Could it be less the new Speculators missing the Sell-Points, or Traders missing the new Buy-Points? Traders must deal with the Farmers and Elevators on a long-term basis, and also know relatively accurately when this Group must buy on the Cash market to fill futures contracts; they enjoying the Thought of the Rubes coming from the Big City.
I am likely to be terribly paranoid this morning, but one has to wonder about the Republican businessman Regulators of the Bush administration. The airlines go down voluntarily for Inspections, canceling thousands of cheap Ticket prices initiated prior to the rapid Run-up in World fuel prices; while new Tickets for the resumed flights will undoubtedly reflect the new flying conditions, including Fuel Costs. I await any possible new Inspections in the future, content that I no longer have to fly anywhere.
Tyler Cowen has a good Post on ‘Pay-all-that-you-can-drive’, but he is somewhat light in explanation of why companies do not adopt such practice. There would be an estimated reduction of total miles driven under such policies, but such Policies would introduce a Wobble into the Profits schedules of Insurer firms. This would adversely affect Stockholder confidence, plus present excessive damage to programed Executive Incentive Packages. There is no collusion between Insurers on Rate-setting, though the Rules guiding Unfair Competition are understood industry-wide; notice they all utilize Package Insurance programs which vary little, which are priced across a narrow-band range. Remember that the reductions would come only from reductions in premium payments. It is another Case where Regulation could be a good Substitute for free market Price-setting. lgl