THE ERA OF TRUMP

[heydaralon]

Makes the price more efficient, actually.

Too much people buying something can drive up the price of it. But speculators are taking short positions too. Without the speculation, you just have people buying shit until they realize it's overpriced and then the whole thing collapses.

explain to me in a dumbed down way why that is the case. It seems counter intuitive.

Speculators make money by trading on volatility. But by so doing, they tend to reduce volatility since they are all taking various sides of trades. Get rid of speculative trades like short selling and options contracts, and markets would become much less stable. There would be less liquidity as well.

Granted, markets also have to pay movers to do their thing as well to keep up liquidity.

A market is kind of like a perfect little ecosystem. All these different kinds of traders are like a specific species that evolved to optimize in a particular niche. If you get rid of one thing, it tends to mess up the whole ecosystem, and each of these roles evolved naturally for a reason.

Would this be the case in a more traditional society?

In a thought experiment, lets say that the United States reverted back to the barter system. Lets say I could trade you a gun for a bicycle or a carton of cigarettes, or a goat for ten chickens. What if local areas set their own standards of exchange up that were agreed upon by the people living there. Would this sort of economy need speculators to remain stable? If so, what would cause the exchange to fluctuate other than a war or natural disaster when things like crops become scarcer.

[SuburbanFarmer]

explain to me in a dumbed down way why that is the case. It seems counter intuitive.

Speculators make money by trading on volatility. But by so doing, they tend to reduce volatility since they are all taking various sides of trades. Get rid of speculative trades like short selling and options contracts, and markets would become much less stable. There would be less liquidity as well.

Granted, markets also have to pay movers to do their thing as well to keep up liquidity.

A market is kind of like a perfect little ecosystem. All these different kinds of traders are like a specific species that evolved to optimize in a particular niche. If you get rid of one thing, it tends to mess up the whole ecosystem, and each of these roles evolved naturally for a reason.

Would this be the case in a more traditional society?

In a thought experiment, lets say that the United States reverted back to the barter system. Lets say I could trade you a gun for a bicycle or a carton of cigarettes, or a goat for ten chickens. What if local areas set their own standards of exchange up that were agreed upon by the people living there. Would this sort of economy need speculators to remain stable? If so, what would cause the exchange to fluctuate other than a war or natural disaster?

As soon as I have 2 or more buyers for my chicken, the price goes up. That will continue until eventually a chicken costs you your entire family.

The speculator, in this case, would be a guy that keeps a flock of chickens off the market, anticipating a higher price. Or, someone that decides not to buy chicken until the price is lower.

[Speaker to Animals]

explain to me in a dumbed down way why that is the case. It seems counter intuitive.

Speculators make money by trading on volatility. But by so doing, they tend to reduce volatility since they are all taking various sides of trades. Get rid of speculative trades like short selling and options contracts, and markets would become much less stable. There would be less liquidity as well.

Granted, markets also have to pay movers to do their thing as well to keep up liquidity.

A market is kind of like a perfect little ecosystem. All these different kinds of traders are like a specific species that evolved to optimize in a particular niche. If you get rid of one thing, it tends to mess up the whole ecosystem, and each of these roles evolved naturally for a reason.

Would this be the case in a more traditional society?

In a thought experiment, lets say that the United States reverted back to the barter system. Lets say I could trade you a gun for a bicycle or a carton of cigarettes, or a goat for ten chickens. What if local areas set their own standards of exchange up that were agreed upon by the people living there. Would this sort of economy need speculators to remain stable? If so, what would cause the exchange to fluctuate other than a war or natural disaster?

Yes.

The first traders and speculators began in the Osaka rice markets in the 1600s.

They emerged naturally in the Dutch markets not much later than that as well.

I guarantee that on some alien world, there are futures and stock markets where trader speculate in the exact same roles.

Once you get the idea of stocks and futures contracts traded on an open market, you are getting all this other stuff.

[Okeefenokee]

It's understandable. Most people aren't familiar with anything beyond corporate stocks. I'm just annoyed that Okee is taking the time to troll all over my posts, to hide his ignorance.

To expose your own.

Well that seems to have worked out well for you.

You didn't even step up to the challenge. The fuck makes you think you've won anything when you didn't even respond to your challenge?

[Smitty-48]

In general, shorting is too clever by half, even Michael Burry says he doesn't look for shorts, he goes long, he's like Warren Buffet, he's just a contrarian, he only went short on subprime because once it was staring him in the face, that was the only play, but he's not out there shorting the market as a strategy.

From 2000 to 2008, Scion Capital returned 489% on the big subprime short, but from 2002, you've made 5000% on AAPL, when you factor in the two stock splits.

[heydaralon]

Speculators make money by trading on volatility. But by so doing, they tend to reduce volatility since they are all taking various sides of trades. Get rid of speculative trades like short selling and options contracts, and markets would become much less stable. There would be less liquidity as well.

Granted, markets also have to pay movers to do their thing as well to keep up liquidity.

A market is kind of like a perfect little ecosystem. All these different kinds of traders are like a specific species that evolved to optimize in a particular niche. If you get rid of one thing, it tends to mess up the whole ecosystem, and each of these roles evolved naturally for a reason.

Would this be the case in a more traditional society?

In a thought experiment, lets say that the United States reverted back to the barter system. Lets say I could trade you a gun for a bicycle or a carton of cigarettes, or a goat for ten chickens. What if local areas set their own standards of exchange up that were agreed upon by the people living there. Would this sort of economy need speculators to remain stable? If so, what would cause the exchange to fluctuate other than a war or natural disaster?

As soon as I have 2 or more buyers for my chicken, the price goes up. That will continue until eventually a chicken costs you your entire family.

The speculator, in this case, would be a guy that keeps a flock of chickens off the market, anticipating a higher price. Or, someone that decides not to buy chicken until the price is lower.

Well for something like that though, if chickens were easy to raise and had value, wouldn't everyone in the area start a chicken coop? Surely, this would lower the value of chickens without creating a bubble.

[Speaker to Animals]

I think people get the wrong idea about speculation because the only way they really understand it is in the context of real estate. But there exist no easy ways to "short" a property, etc. You can do that stuff with mortgages, but that's a different issue. Speculation in the real estate market means people are just buying more property than they need in the expectation that the price of the land or house will be higher in a few years.

The real estate market is exactly like the stock market would be if there were no such things as derivatives and short selling. You get people buying lots and lots of some stocks until there was a bust. Derivatives and short selling keep that from happening (most of the time).

It's not 100%, by any means, but it would be much worse without those things.

[Okeefenokee]

As soon as I have 2 or more buyers for my chicken, the price goes up. That will continue until eventually a chicken costs you your entire family.

Well, we can all thank God that GCF doesn't own a chicken. If he did, we would all be selling off our children. Oh, shit. I just realized. The grocery store has chicken for sale. I need to set up a go fund me to keep my kids since it's obvious through GCF's economic analysis that I won't have my kids for long.

IG
NOR
A
MUS

[heydaralon]

In general, shorting is too clever by half, even Michael Burry says he doesn't look for shorts, he goes long, he's like Warren Buffet, he's just a contrarian, he only went short on subprime because once it was staring him in the face, that was the only play, but he's not out there shorting the market as a strategy.

From 2000 to 2008, Scion Capital returned 489% on the big subprime short, but from 2002, you've made 5000% on AAPL, when you factor in the two stock splits.

In the book, it made it sound like Burry made nothing from his activities. He basically just did it to throw it in his clients face and say "I'm right you are wrong. Eat shit!" If he really did all that for no charge, that kind of makes him a dumbshit. He basically predicted the collapse of the housing market, and got nothing out of it...

[SuburbanFarmer]

Would this be the case in a more traditional society?

In a thought experiment, lets say that the United States reverted back to the barter system. Lets say I could trade you a gun for a bicycle or a carton of cigarettes, or a goat for ten chickens. What if local areas set their own standards of exchange up that were agreed upon by the people living there. Would this sort of economy need speculators to remain stable? If so, what would cause the exchange to fluctuate other than a war or natural disaster?

As soon as I have 2 or more buyers for my chicken, the price goes up. That will continue until eventually a chicken costs you your entire family.

The speculator, in this case, would be a guy that keeps a flock of chickens off the market, anticipating a higher price. Or, someone that decides not to buy chicken until the price is lower.

Well for something like that though, if chickens were easy to raise and had value, wouldn't everyone in the area start a chicken coop? Surely, this would lower the value of chickens without creating a bubble.

Correct. And that's the basis of any economy - that supply will rise to match demand.

However, when you allow someone to grow all the chickens, and prohibit others from doing so - they have a monopoly. And then, the price is unlimited, until the market fails.

Every business is trying to form its own monopoly, and when they manage to 'corner' a market, the price shoots up dramatically. This is what happened with Apple (after the iPhone), Amazon, Netflix, or companies like Disney - which have a monopoly on intellectual property.

Bubbles tend to be created when a lack of regulation allows too much monopolistic behavior. It also happens whenever supply is restricted for another reason, such as tariffs, embargoes, or a patent is applied too broadly, allowing a single company or group to completely run an area (telcos, cable companies).