Saturday, March 07, 2015

ONCE MORE ON THE VISIBILITY OF PRICES - LOOK AND YE SHALL SEE

Helenic Shipping News (28 Jan) here 
“The Best Indicator That Oil Prices Will Rise — Quickly” 
“No matter what the “experts” say, no one really knows whether oil prices are going higher or lower over the next year. But the invisible hand of the market is definitely making a guess that looks very bullish for energy companies and investors.”
Comment
This typical commercial bulletin from “expert market watchers”, of which there are many making a living from dressing up their claims to their expensive expertise in modern jargon waffle that baffles their subscribers.
First the blindingly obvious: “no one really knows whether oil prices are going higher or lower over the next year.”  True! 
“But the invisible hand of the market is definitely making a guess that looks very bullish for energy companies and investors.” False!
Next the Jargon waffle: “contango”, in contrast to “backwardation”, supported by trends in “oil futures”. 
Confused?
Well you need expertise to help you and, fortunately, you can benefit from  “a brand-new investigative report on this significant investment topic and the company helping fuel its boom”…
But what about “the invisible hand of the market” that supposedly “is definitely making a guess”? Well nothing more is said about it!
Just as well because it doesn’t exist. Markets operate through visible prices, not “invisible hands”. If future contract prices appear to be rising this has nothing to do with any entity that is invisible - the rising prices of futures contracts reports that their rising visible prices are driven by market players apparent belief that prices will rise; if visible prices of futures contracts are falling then market players believe oil prices in future will fall. 
Current and would-be players are making guesses as to what will happen in the near and distant future. Their bets reflect their sentiments, not their specialised, insider’s special knowledge.

As we say in Scotland, the future price game is a bogey, much like horse-racing (the latter of which industry also has its share of people selling their “insider” knowledge… 

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