Silly Rabbit, Trix Are for Kids

A question posted recently here on my blog:

“What value do individual traders provide society with? I can understand that fund managers earn fees by helping clients earn profits. But what about individual traders who trade their own account? I think Anthony Robbins said that what you earn is directly related to the value you provide, so to earn more you should provide more value. What value do traders provide? A couple of things I can only think of: capital and liquidity. But how do returns relate to the value a trader provide?”

If you take traders and speculators out of the market what are you left with? Of course that ignores the point that everyone (including this poster) is a trader to begin with — whether they understand that point or not.

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You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content.

49 thoughts on “Silly Rabbit, Trix Are for Kids

  1. What value do traders provide?
    We keep people who ask such questions employed by buying the things they sell us at BestBuy, Target, and Walmart.

  2. Traders provide a priceless service to society: We bring prices towards their justified levels. We punish everything which is worthless, and reward everything which has value. This all takes time, of course, and the process of “pricing in” is called “Trend”. There will be bubbles and panics, yes, but thats the cost of this incredible awesome system called “free market economy”. We’ve been called “Sharks”, “Predators”, “Locusts”; and we should be proud to be called so. Sharks are doing a very important job for the ecological system.

    The alternative would be socialism and central planned economy, where prices are set by some bureaucrat. In such an economical system, prices get more and more distorted, until the whole economy becomes a farce. Socialism is characterized by “When it works, tax it. When it still works, regulate it. When it finally stops working, subsidize it.”

    Socialism is the direct opposite of reason. Reasonable action is “Do what works, stop doing what doesn’t work.” (the basic principle of trend following). Socialism clobbers everything which works (“Greedy exploitation!”) and subsidizes everything which doesn’t work (out of “social” considerations). Socialism is the equivalent of a trader who sells his profitable positions, and “averages down” his losing positions.

  3. Good insight from Steffen, and even though henry’s comment sounds rude on the surface, there is truth here. To put it more politely, all the money that traders make will be redeployed in the “real” economy eventually through the purchase of goods and services. This in turn creates value for other people. A good trader then, is not so much a value creator in the act of trading, but an agent who chooses where to create value in the real economy.

  4. traders and high frequency algos move prices to fair value as they discover new information, send important price signals to investors and businesses, and provide valuable liquidity to the market, which ultimately lowers the costs for businesses to raise capital. Traders are an important cog in the checks and balances, to over reactions, to under reactions, and to corporate fraud and pump and dump schemes – all of which increase in illiquid high cost markets (like penny stocks, where they are easy to maninpulate due to low liquidity and few shares to short). Take away liquidity through a transaction tax or eliminating short selling, then costs go up for businesses, fraud goes up, and price manipulation goes up.

    Example, take a company that is profitable but maybe borrowed too much, say $40 for every $1 in assets. Short sellers may find that the company is actually worth less than $0 if there is a small move down in the prices of it’s assets. They sell the stock or short the stock and it moves lower, signaling to investors that something is wrong, more and more of whom will begin to look closer as a result of the price drop. If these traders are wrong, then a value investor like warren buffet will at some point step in and buy, and shorts will be forced to exit, and prices will rise back to a higher equillibrium. if the original traders are right, and it goes to $0, the entity blames short sellers rather than their own poor financial management, then attempts to change the rules.

  5. “The symbol of all relationships among such men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot are traders, both in manner and spirit. A trader is a man who earns what he gets and does not give or take the undeserved. A trader does not ask to be paid for his failures, nor does he ask to be loved for his flaws. A trader does not squander his body as fodder, or his soul as alms. Just as he does not give his work except in trade for material values, so he does not give the values of his spirit—his love, his friendship, his esteem—except in payment and in trade for human virtue, in payment for his own selfish pleasure, which he receives from men he can respect. The mystic parasites who have, throughout the ages, reviled the trader and held him in contempt, while honoring the beggars and the looters, have known the secret motive of the sneers: a trader is the entity they dread—a man of justice.”

    “Atlas Shrugged” – Ayn Rand

  6. Hedgers,who seek to protect themselves from risk (future price moves agaist them), are also traders. As speculators, we take on their risk from these hedgers, in hope of our profit.
    If we had no other value, this would, in itself, justify our actions in the market, since it expands the range of goods offered to society (from miners, manufacturers, farmers, service firms).
    We also price fairly currencies, themselves, to the extent that governments let us.
    Markets and traders are slandered because they cannot be contained indefinitely by political manipulation.

  7. Michael’s comment on how we are all traders is excellent. If you sell any good, product, or labor you are a trader. Wholesalers take a risk premium discount on manufactured goods from manufacturers. Retailers take a risk premium discount on wholesale goods. What traders do is create a market in which to price risk and reward.

  8. I see that the title of this post is a reference to the Trix ads ( http://en.wikipedia.org/wiki/Trix_Rabbit ), but I am not familiar enough to understand if the title is supposed to mean anything.

    Also, could you elaborate on what is meant by everyone is a trader? I guess I am one of those who don’t understand that point.

  9. Actually, everyone who breathes is a trader of some sort, trading his time, education, freedom, energy and efforts for something else: a job, writing a book, going to medical school, raising a family, working as a real estate broker, becoming a religious mystic. Market traders (speculators) provide 2 important functions: they facilitate distribution of items (agricultural products, financial instruments, etc.) and in doing so help in the proper allocation of risk among parties, and they produce the vast quantities of ever changing data points on price popularly known as price discovery.

    Take a simple form of trader, that of an apple buyer at a large fruit market. When farmers truck in their apples at 4 a.m. Monday morning, the buyer (actually buyers) offer prices for their large amounts of produce, allowing the apple grower to exit his trade (that he entered when he fertilized the soil and tended his orchard all year), and holding the “apple risk” until the supermarket buyers show up at the market.

    As other posters have noted, and as everyone knows, it’s very hard to know the true price (that point at which a seller will sell and a buyer will buy) for many products. Just think how unpleasant it was to do “price discovery” on your last house, or car. All market participants, by offering to buy or sell at certain prices, voluntarily and without compensation, form all the data points which allow transactions to take place at the then current fairest price possible. Commodities, currencies, equities, and indices can only be fairly priced by getting as many participants together at the present moment to present their bids and offers.

    The question also implies that “traders” somehow always earn profits and that those profits must somehow come out of other, perhaps more “productive” people. This is nonsense, of course. Trading is, over time, a zero sum game, in which the better liquidity providers and price discoverers take their earnings out of the market from those less skilled, and of whom there always seems to be a new crop ready and waiting to try their hands at the liquidity function.

  10. I agree Michael! Whether we’re buying and selling hot dogs, stocks, commodities, services, or anything else – we are all traders!

  11. I ran into this phenomenon in a past profession when I sold broadcast advertising. When people asked what I did I used to joke that I sold my clients 30 or 60 seconds of “air” for a living. If you think sales is hard, try selling an abstract like a radio advertisement to a business person who is used to dealing in tangible goods, not abstracts.

    Just because those of us who trade markets may deal in an abstract doesn’t mean that what we deal in doesn’t have any value. We may not take delivery of what we trade, but that doesn’t mean what we trade doesn’t exist.

    The comparisons being made to any other avenue of life (like grocery shopping) is a good one… every time you take money out of your pocket to buy something you’re buying at a price at which you agree is a good price to trade.

  12. The world economy has expanded because of trade. I think trading can mean different things though. If I have spices, and you have metal, we can trade because we each lack what the other has. Modern trading is more speculation than “trading” in that sense, because most traders have no interest in owning the assets they trade. When you have fiat currency, you distort the value of everything. Most stocks pay no dividends, and most people are not having oil delivered to their door. It’s gambling to an extent. One could ask, if you were stuck on a desert island, how much value would a trader have vs. a cook, carpenter, or doctor ?

    Modern “traders” trade their money for commodities or equities to another party who needs the cash at any given time. In turn they hope to sell it to another buyer at a higher price. It exists because of agreement in the marketplace, and hope. It’s not good, it’s not bad, it just is. Somebody wins, somebody loses. A trader never built a bridge, website, or cell phone.

  13. Speculation is gambling Derrick? That is not a true statement, unless you are here to proffer a political opinion…and even then it would not be true. A little misguided here…

  14. Michael, let’s keep it real.

    You are writing on a computer that an engineer designed. You drive a car that an engineer designed. You speak on microphones that an engineer invented. Your trading courses are on materials that chemists invented. Scientists/Engineers make the world go ’round. I read Trend following, I loved it, it’s made me money, but the idea that modern traders add or create value is laughable. even in the movie “Wall Street” Gecko admits it’s B.S. “I create nothing!…I own”. We all have biases. I trade equities, but I’m not kidding myself. The modern stock market is a game. The Forbes list doesn’t lie, most on there are there from tangible products/services.

  15. Michael,

    I understand your position on the topic. No need to be condescending. My definition of a modern trader is anyone trading after the U.S. got off the gold standard. The financial sector as a percentage of GDP has grown dramatically since then. No politics here. You did not address my point that most on the Forbes list are not traders, so it would seem that society assigns a higher value to what these people do versus traders. Companies have survived for hundreds of years without traders, not the other way around. It’s a host – parasite relationship.

  16. Derrick, you walk into the room aggressively barking up a not well read opinion … and are corrected … I expected your reaction. Your Forbes logic? Makes no sense … you are a trader/speculator … like everyone else … whether you/they want to admit it or not. You don’t like what value you think speculation/trading brings to society … then lay out for me the world you envision w/o it. Here’s a hint: you can’t.

  17. Derrick, lots of non-sequiturs and unsupported (historically &/or statistically) assertions in your posts; and, I don’t think that Mike Covel or I am being condescending here.
    How do you think most engineers/inventors launched companies? By bartering seashells? Scamming old ladies out of their jewelry?
    Since no means exists of knowing what future conditions hold, every sane adult will make guesses about what will benefit him.
    This includes a decision to lend to an inventor, hire a carpenter, of put money in a bank.
    Competitively, some men (general case – for ladies who may read) will succeed in economic life; and they’ll have this intermediary form of wealth we call “money” to do things with beyond paying for groceries.
    If they wish to make guesses (“investments,” “speculative trades,” God forbid Short Sales) with their money, they/we also incur risk that future conditions will cause a loss.
    Naturally, this affects decisions about how to trade what he produces.
    This is normal life, no matter how “abstract” the vehicles of exchange.
    On your Desert Island, neither a cook, carpenter or doctor may necessarily have any more value than Gordon Gecko – depends on who & what else may have washed up on the beach.
    And, seriously, it’s not a real comparison, Derrick, unless you think Stone Age existence for people is preferable to civilization.
    Finally, do you think that no “sterile speculation (old Marxist slur, isn’t it?)” ever took place before FDR & Nixon took the U.S. off the gold standard?
    Not to go all macro here, but try a recent book “This Time It’s Different,” re: ~8 centuries of statistics on coin clipping, sovereign debt defaults, etc.
    And, not to be personal, but do you feel guilty about your trading profits, or some such thing?
    Lord, we get enough guilt-tripping from Lefties…

  18. This excerpt seems to be before gold standard removal too:

    “Aristotle described the story of Thales, a poor philosopher from Miletus who developed a “financial device, which involves a principle of universal application.” Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or poor and because the olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came, and many presses were wanted all at once and of a sudden, he let them out at any rate he pleased, and made a large quantity of money. The first futures exchange market was the Dōjima Rice Exchange in Japan in the 1730s, to meet the needs of samurai who – being paid in rice, and after a series of bad harvests – needed a stable conversion to coin.”

  19. Michael,

    Why can’t anyone have a viewpoint that is not directly in line with yours ? I avoid guru-itis. There are many ways to make money in the markets trading, as there are many ways to see the world. I am simply stating that the question asked on your blog had some validity. Markets can find their own equilibrium with or without derivatives. I think most would agree that Thomas Edison has contributed more to society than Steve Cohen. I think that’s a fair statement.

  20. Do you really think you are battling my writings alone? Derrick, if I ever coach a youth team, my players don’t get ribbons or trophies just for showing up. Sorry.

  21. Dōjima Rice Exchange in Japan in the 1730s = guru-itis??

    Explain how it all works without trading and speculation. Let’s hear it. The floor is yours. Just telling me it would all work w/o derivatives and assuming that literally CENTURIES of human progress were pointless … is either crazy talk or vastly ill-informed talk.

  22. I agree Michael. When I play, I play to win. (Go Yankees) I’m just saying the world could make it without securities markets and futures exchanges. Buyers and sellers always found each other throughout history with or without an intermediary. (That’s what is making the web grow like mushrooms) It’s also why network TV is dying. Middlemen always have made money, but they did not create the things they traded. I guess some value was created in the transaction, but you can’t transact your way to greatness. At the end of the day, the USA is falling behind economically because we don’t manufacture things like we used to. Thank you for pushing me to think harder. I enjoy your website.

  23. “I’m just saying the world could make it without securities markets and futures exchanges. Buyers and sellers always found each other throughout history with or without an intermediary.”

    You really need to do some soul searching on the above belief…

  24. They buy directly from you, the creator of Turtletrader. They do not have to pay an additional 1000.00 because an online retailer needs to make a profit. That’s my point.

  25. That’s quite different than eliminating futures exchanges. You seem to miss the economic need for why they were formed.

    BTW, title of this post was inspired by video I am embedding to the main post body (and yes, I remember the ad growing up long before the film).

  26. How is it different ? I want to be educated, not “ranked on”. You have a valuable commodity (information) that traders need, but they buy directly from you, and you maximize your profit margins because you control the product. Someone could not realistically sell your courses for double the price, because anyone can buy it from you at fair market value. Farmers in different parts of the world sell their crops directly to end users without a grain exchange…Why can’t it work for other things ? If “free trade” truly existed, then maybe the fabric of the investment/trading world would look different. I recommend the book “Confessions of an Economic Hitman” by John Perkins.

  27. Derrick, go here and read everything (as but one start). When done there, read book “Human Action” by Mises. You want education? Got to do some work too.

  28. Thanks for making me think harder Michael. I will check out ” Human Action”. VICTORY !!! lol.

  29. Very little is done by people with their own money. Whether it is expanding a company by selling equity or borrowing with explicit loans and bonds, or even having your credit card purchases covered between the purchase and your paying the bill, most people’s lives involve other people’s money to some extent. From the other side of the table, the other people providing the money call it “savings” and expect to be compensated for deferring their use of their money. Traders are simply seeking a return on their savings. They are willing to accept a higher level of uncertainty than people with bank savings accounts in return for the potential of higher returns.

  30. I’m just saying the world could make it without securities markets and futures exchanges

    The world could make it without bridges, websites, cell phones, computers, electricity, and all the other things you mentioned Derrick. Humans did just fine for thousounds of years without those things. Those things just make life easier, just like markets and exchanges make life easier. The bottome line is that value is not only created from tangibles, there is value in intangibles also.

  31. Right! Just how “tangible” is electricity, for example?
    Unless we stick our fingers in a socket…
    Hmm.
    Thomas Edison: Brilliant, hard-working inventor; took ~15 years to perfect light bulbs, and, more importantly, a means of generating and distributing voltage as useful (DC) current.
    Who do you think paid for his persistence?
    Ever hear of J.P.Morgan, evil Robber Baron?
    And note: Morgan stuck with Edison through some hairy episodes; one involved burning down a wing of his daughter’s house, with the new-fangled lighting and wiring.
    And, as for farmers selling directly, abject rural poverty has kept most of the world’s population in misery for centuries, for lack of a means to guarantee farmers a predictable income, through droughts, floods, blights, etc., that occur after the seeds go in and before harvest.
    I’ve family who still farm, back in the old country.
    This crap about “middlemen” really takes us back to Medieval bigotry; Derrick, I sincerely hope that’s not your frame of reference.

  32. Thank you all. I appreciate the feedback. I simply believe that there could be a hierarchy of values in society, and the value that traders “create” could be ranked below a biochemist, software engineer, or television sports producer. Trading serves a purpose, no doubt. I’m just saying without the creative intelligence of inventors and entrepreneurs, financiers and traders have “no-thing” to invest/trade in. Many companies in America have started from scratch and are thrive without capital markets getting involved. Not everything is a commodity. I am not attacking traders, or the financial system.

  33. Derrick, have you ever heard of “risk management”? Almost EVERY company has shareholders.. there is no way you can build a thriving company without some kind of involvement of risk allocators (business initiators, prime investors, bankers, venture capitalists, stock holders and yes.. speculators). Stock and commodity markets exists for a specific reason of liquidity speed and risk allocation.

  34. “We along with major market participants believe that the volatility of dairy markets will increase over the next few years. The use of derivatives to hedge against higher prices and fluctuating costs is expected to rise, thus the introduction of our new futures is a logical step,” said Peter Reitz, member of the Eurex Executive Board. “We also want to contribute our known strengths, particularly our global distribution network and central clearing services, to this growing market.”

    http://tinyurl.com/ybu7oe4

  35. Patrick,

    I have heard of risk management. Read this.

    source : http://www.wral.com/golo/blogpost/3370468/

    will private oil sink the nymex?
    Published August 13, 2008
    Views: 271

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    The world’s largest governments are drastically changing the way they buy and sell oil, and it could affect every family, small business and multibillion-dollar corporation across the globe…

    So far, this historic shift has been scarcely reported. But the transformation is undoubtedly underway, and quietly altering the future of energy.

    Rapid economic expansion in Russia, India and, most importantly, China, has led the governments in these countries to review their traditional sources of oil, and to make substantial changes in the way they get it. They’ve opted to circumvent the traditional distribution networks of the New York Mercantile Exchange (NYMEX), and other bourses, entirely.

    In fact, they’re undermining them, “locking up” supplies by purchasing crude from oil-producing countries directly – behind closed doors:

    ** Angola committed to supply China with 200,000 barrels per day of crude at $60/barrel for the next 10 years, in return for Chinese investment in infrastructure projects such as railroads, roads and bridges.

    ** India already imports about 24 million tons of crude from Saudi Arabia every year, which is 26% of its total crude imports. It has stated a desire to secure long-term contracts to assure delivery in the future. Indian public sector firms have participating interests in oil and gas projects in Vietnam, Sudan, Russia, Iraq, Iran, Myanmar, Libya, Syria, Australia, Ivory Coast, Qatar and Egypt.

    ** Russia, India and China are involved in efforts to build and control petroleum pipelines throughout the central-Asian and Middle Eastern regions. The Shanghai Cooperation Council, for instance, was formed to ensure that oil from the giant Baku-Tbilisi-Ceyhan pipeline flows to the East, not West.

    This strategy is coming to be known as “Energy Mercantilism.” Producers – and consumers – are bypassing the marketplace altogether, and it’s taking massive quantities of oil off the open market. Now, the free markets that have historically determined the pricing and allocation of oil are in sudden danger of extinction, and with them, competitive prices for U.S. consumers…

    In the past, the world has relied on an open marketplace to set the price of energy. For decades, the NYMEX has been the epicenter of energy trade. But China and India, in cooperation with a key supplier, Russia, have turned the tables by making bilateral agreements to lock in long-term supplies at set prices, or by forming consortiums to guarantee supply.

    China has become the world’s second-largest importer of oil. And the U.S. Energy Department estimates that the country’s demand will more than double, to 14.2 million barrels a day, by 2025. More than two-thirds of that will be imported. But China and India’s demand for oil is still in its infancy – around 1.3 barrels per person per year, compared to 4.4 barrels per person per year in the developed world. When their economies begin using 2.4 barrels per annum per person, they’ll need 24 billion barrels of oil a year – double the current amount consumed worldwide.

    What’s important to emphasize is that in this new Energy Mercantilism, oil prices are locked-in, no matter how the market fluctuates in the future. That means not everyone will pay the same price for oil, fundamentally altering the dynamics of the energy marketplace. It directly counters market pricing, and destabilizes the supply/distribution channels that currently determine who can afford oil.

    And these “private” oil deals are beginning to roll in…

    ** In Russia, Vladimir Putin has been squeezing Europe by withholding supplies of natural gas while negotiating for exclusive pipeline deals. In 2003, he dismantled the Yukos oil group who had expanded dealings with the West. He has explicitly stated that Russia will demand bilateral long-term supply contracts with consuming nations, so Russia could guarantee stable demand for its exports.

    ** China National Petroleum Corp. has entered joint development agreements with Sudan, which is expected to produce as much as 300,000 barrels per day by the end of 2006. Another Chinese firm, Sinopec Corp., is erecting a pipeline from that complex to Port Sudan on the Red Sea, where the Chinese are building a tanker terminal for shipping raw crude to the Chinese mainland. Altogether, Sudan, despite conducting what is widely regarded as genocidal warfare not far from the oilfields, provides 10% of Chinese petroleum imports.

    ** In November 2005, Chinese President Hu Jintao toured Latin America and completed a number of economic deals, including an oil deal with Argentina. Hugo Chavez, the President of Venezuela, has said Chinese firms would be allowed to operate 15 mature oil fields in eastern Venezuela, which could produce more than one billion barrels. Chavez has also invited Chinese firms to bid for natural gas exploration contracts.

    ** Sinopec, China’s state-owned oil giant, signed a $70 billion deal with the Iranians in November 2004 to develop the Yadavaran oil field. Sinopec will also buy 250 million tons of liquefied natural gas over 30 years. Iran is committed to export 150,000 barrels per day of crude oil to China for 25 years.

    The fact is, 90% of world reserves are controlled by national oil companies, as opposed to market-driven public companies. Exxon Mobil, for example, is the largest publicly traded oil company. And it ranks only 14th in proven reserves, directly below 13 national oil companies, including those of Iran, Venezuela, and other governments overtly unfriendly to the U.S.

    Most oil and gas resources are controlled by state-run companies, some of which enter into supply contracts with consumer countries that are accompanied by political arrangements that distort the proper functioning of the market.”

    The fact is, more and more oil buyers and sellers are hooking up directly, outside of the marketplace. And in many cases, they’re including other “payments” into the transactions – direct investment, infrastructure development, political favors, trade agreements, etc.

    And therein lies the uncertainty. How does one know if he’s paying the going rate for oil when a going rate doesn’t exist?

    Filed under: News & Issues

  36. Derrick – this is exasperating – there is no such thing as a “hierarchy of values.”
    You are mixing ideological moral judgments with economic calculation.
    If you’d listen to Mike Covel, and read Mises et al. (“Human Action,” especially), you’d be reminded that all decisions about economic value are individual, subjective.
    Markets sift and sort these in a competitive arena, constantly summarizing a dominant result of competitors’ valuations – in a PRICE.
    Who knows how many inventions and improved methods never came to light because the originators couldn’t get their new work out into society – because they couldn’t find a way to exchange their work at a competitive price?
    And, as to your oil/gas example: You’re making our point – political manipulation of markets warps normal price levels and normal incentives, hobbling supply.
    “Free market” is really a redundancy; if not free, you’ve just got a coerced exchange, so real prices cannot be found.
    Remember USSR? “If they’re going to pretend to pay us, we’ll pretend to work…”
    Lots of supply there.

  37. “What’s important to emphasize is that in this new Energy Mercantilism, oil prices are locked-in, no matter how the market fluctuates in the future. That means not everyone will pay the same price for oil, fundamentally altering the dynamics of the energy marketplace. It directly counters market pricing, and destabilizes the supply/distribution channels that currently determine who can afford oil.”

    Lock-in deals are exact thing why countries get into wars.. inflexibility in prices works out in flexible amount of blood being shed in industrial quantities. 😉

  38. A note on Michael Rubin’s comment:

    There is of course a hierarchy of values, and it is set individually by each person. The original post by Covel was a question of what value an individual trader brings, not if they bring any value at all. Derrick might personally value the inventor’s more recognizably tangible contribution more than he values the individual trader’s, for any number of valid reasons. We could speculate forever about where the world could be without one or the other (traders or inventors).

    And Derrick’s post doesn’t make Rubin’s point. Political manipulation doesn’t warp ‘normal’ price levels. According to the ideas behind trend following, prices simply ARE — there is no good, bad, normal, or abnormal about them. The manipulation is simply one factor for the prices paid for a commodity in a certain region. There is no such thing as REAL prices either, per the same logic. But, traders in a region may provide a liquidity which benefits more people and distributes risk, which creates a value for the traders and for the purchaser’s/users/sellers of oil… The prices just are what they are where they are.

    And how important is this redistribution of risk and the value it creates along the way? That is a question for the philosophers, and for users of that commodity (be it oil, iPhones, blueberrries, or whatever). If I am Amish, then the value of service that an oil trader provides to me is much lower than the value of a skilled wooden-wheel-maker.

    So perhaps we should not look at this subject of value so absolutely. Traders do create value, but that value is relative to many personal, philosophical and societal factors.

  39. Rob, Derrick: Gettin’ a tad fine-spun, ain’t we?

    You’re confusing priorities (individual, subjective) with values (basic constants of decisionmaking – and objective, even when not acknowledged).

    Don’t take my word for it.
    Check out ol’ Ludwig (von Mises, as mentioned) &/or any of the research Mike Covel cites, from Tharp, Steenbarger, et al.
    Or, dramatized, by the Goddess of Liberty, Ayn Rand herself?

    In pure economic calculation, “value,” of course, may simply = price.
    So, sure, lots of decisions about what to give up for what I (or whoever) may want; hence lots of bids/offers.
    Etc…

  40. Wow, what a lot of posts to try to enlighten Derrick, but it’s most likely energy wasted. There are several levels or layers of belief (think of them as storm categories: level 1, general idea, weakly held; level 2, accepted idea (sun rises in the east), willing to entertain countervailing ideas (the sun doesn’t rise, the earth spins); level 3, scientific fact (things fall down due to gravity, 3 states of matter, solid, liquid, gas, etc), again subject to change (wave/particle theory of light and matter, Heisenberg Principle, space time continuum, warping of space contours; and level 4 and above, which I would call “beliefs” which are generally not subject to counter proofs.

    Religious beliefs are of this nature, but so are others, such as political or other beliefs. Once a guy held (to me) a fanatical belief that there was no safety purpose served by wearing a bicycle helmet–you simply could not reason with him, anymore than you could poke holes in the faith of a Southern Baptist; people who suffer (and can die) from anorexia nervosa have these almost unshakable beliefs in how fat they are–a belief they are willing to die for (see Karen Carpenter et alia); Communism (of the Chinese sort) was a long standing, lunatic like belief in the virtue and power of central planning–final cost, maybe 60 million Chinese lives during peacetime.

    So, Derrick has some sort of Level 5 belief in the “value” of an inventor or engineer engaging in his vocation (which really amounts to managing information of a certain type to “build” something. However, an anthropologist watching him would most likely observe someone using a calculator and a computer to draw and redraw lines, maybe print them out or send them attached to an email somewhere where someone else would do something with them. And the same anthropologist (let’s say he just landed here from Mars) would be hard-pressed to differentiate the engineer’s activities from those of a trader either identifying consolidation areas or trends on a computer from a myriad of data points and acting upon the information set that he chose.

    Ever since Australopithecus Africanus first roamed the African Veldt we have been working as information analysts (what cave is safest from lions in the night, what grubs are good to eat, what is the best wood and best stone for fashioning a true spear, what strategy is best for a hunting party, what strategy is best for gathering berries and roots). That’s all we do, we gather, analyze and act on data points; in other words, we trade.

    To draw divisions and create “hierarchies” on human activities (is a nurse superior to a garbage truck driver? Which one does more to safeguard the public health?) is often self-serving, but at the very least smacks of declaring some level 5 beliefs for all to follow.

    Doug

  41. I agree with Doug… trying to get someone like Derrick to change his mind is a waste of time. He regards his own opinion so highly that it will always interfere with his judgment (and ultimately his ability to make money).

    Here’s a nugget for you to chew on Derrick… it doesn’t matter what you’re “trading” or “bartering”… there is always a “price” involved as soon as the “barter” is made… with both sides believing they got the best deal or they wouldn’t have entered into the contract in the first place. Whether you use money or tangible goods there is always a “fiat currency” involved, and that is the price that both sides are willing to pay to strike the deal.

  42. Derrick also has a misconception about what an engineer does. He doesn’t build a bridge; he simply gathers information and data on bridge design (much of it going back 3,000 years or more), collates it, maybe (MAYBE) adds something new (but unlikely), and sends it on. The government agency must approve it and float a bond to pay for it, underwriters must (take the risk and) price the bonds, bond buyers (some of them, gasp, speculators, maybe all of them) must buy the bonds and fund the project, then a construction company must win the bid (again, information management), purchase steel and concrete from entire chains of corporate producers, etc. etc.

    What the engineer isn’t particularly wonderful, compared against all the other actions that all the parties have to take. No bridge gets built without all the parties’ actions, and each individual party is pretty much fungible (that is, if the engineer dies at his drawing desk/computer, another can be found to take his place) except for the one monopoly holder in this whole thing, the govt authority.

    And, my oh my, look at all the markets and speculation that is involved: municipal bond market (above), equity markets (for the construction company, the steel company, the concrete company, and countless others), the forex market (some of that steel may be coming from Korea or China, you know), the commodities markets.

    What possible value do the markets and their participants (speculators) contribute? Well, you’d have to be blind not to see it.

  43. Funny thing, I just ran across this article on steel markets; it will probably be of interest to everyone except maybe Derrick:

    Annual iron ore contract system collapses

    March 30 2010 19:17

    For decades, iron ore was plentiful, prices were stable and mining the commodity was a monotonous and unglamorous business.

    That began to change in the early 2000s when China’s huge steel needs transformed iron ore into the “unobtainium” of the global commodity market. Prices began to soar and, as they did so, the annual pricing system that had served as a benchmark for four decades began to be questioned.

    That process reached its conclusion on Tuesday when miners and steelmakers ditched the system of annual contracts and long negotiations that had been in place since the 1960s for new short-term deals based on the spot market.

    “This is a momentous occasion,” says Melinda Moore, a commodities analyst at Credit Suisse in London. “The industry is revolutionising the way iron ore is priced.

    http://www.ft.com/cms/s/0/e8a78a74-3c21-11df-b40c-00144feabdc0.html

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