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August 26, 2008
I thought this was execellent
To an economist, any conceptual distinction between "hedging" and "speculation" is inherently problematic. When an oil refiner takes a position with futures contracts, it is unlikely to be ignoring its own guess as to where prices are heading. But making a bet based on such guesses seems to be the definition many people have in mind when they speak of "speculation." On the other hand, when a pension fund manager takes a modest long position in commodities, that can reduce the overall variance of the portfolio due to the negative correlations between commodity price changes and other asset returns, which would most naturally be described as hedging against inflation risk. The idea that the motives of a given trader can always be classified as either pure hedging or pure speculation, and that the positions of commercial versus noncommercial traders reported by the CFTC give us meaningful information about those motives, strikes me as a very dubious proposition. Discovering a potential "misclassification" could hardly be the basis for becoming legitimately alarmed. More speculation about those oil speculators
Posted by OneEyedMan at August 26, 2008 3:36 PM
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