I’ve been in many different businesses including gas stations and as a commodities trader. Knowing how both work, I feel sorry for the gas station owner simply because they are the ones on the front lines, the ones who get the blame and the bad mouthing when gas prices go up. I’m going to use gas prices in the following examples but they pertain to all commodities.
When there’s only a few cents profit per gallon in gasoline, you don’t have a lot of flex as far the price at the pump is concerned. That is, if you want to stay in business. On the other hand, if you’re in the commodities market, the stock market, on Wall Street or a big bank, which can all be one in the same, if you lose money some enabling politician will bail you out…using someone else’s money of course. Have you ever seen the government bailout a corner Mom and Pop store or gas station?
In the commodities market the speculators are betting the price will go up, so that you lose at the pump and they gain in their commodity futures contract price. When someone wins, someone else loses. We got out of commodities trading for exactly that reason.
The commodities market is worldwide and 24/7. You can go to bed at night with the price of a commodity at one level and awaken the next morning to find the bottom fell out because some big trader, or block of traders, knew suckers had been about depleted in that market and sold. Their selling can put you out of business and make commodities, like gas, fluctuate; up when they buy and down when they sell.
When the well connected, big traders buy and prices go up, they make money…especially if they’re connected with the entity that sold you your futures contract. When they sell at the top and prices go down, they make money. Either way, you lose at the pump, in the supermarket or because you bought high and weren’t able to get out of your futures contract before the price crashed.
Big traders, or their lackeys, sit glued to bad news information sources, like the upheaval in the Middle East, crop disasters or death and destruction anywhere in the world. Next, they start looking for commodities that will be effected or perceived as effected. Even if the commodity may only be superficially effected by their large block purchases, they know if they buy enough other small traders, speculators and people who are hoping to get rich or think they are hedging their retirement bets, will jump on that commodity band wagon. Study the current information and real facts on silver and, if you dig deep enough, the truth will be apparent.
If the big traders believe the market is saturated and sell on the Tokyo Exchange while you’re asleep in Mid-America, you lose. If you knew when they bought the commodity and for how long the contract was for, you might be able to figure out when they were going to dump their futures contracts and be able to sell while the prices are still on the rise. If there are still more buyers to participate in their Ponzi scheme, they’ll likely roll the contract over. If it appears their futures contracts will expire just before the new buyers run out or just before the price will likely go down anyway, which can be totally dependent on how much they dump at one time, the big traders sell. If it appears the contract will expire before the price begins to drop and there is no way it can be manipulated for more profits, they sell. There are also other scenarios that may play out.
Number one: If there’s a panic, the big traders may sell before the price drops below their buying price, which will drive the market even lower and more quickly. Meaning, the small trader who isn’t in the inner circle will probably get blind sided while asleep. The first scenario isn’t very likely because, if it happened often, even the trader who is asleep 24/7 will eventually be able to see how the system works and there would be no fall guys.
Number two: Even if the price is almost topped out, the big, well connected traders will buy a large enough block of commodities to bring more people into their Ponzi scheme who believe what they read and hear from the media, which may well be bought and paid for by those who are doing the buying. Those new buyers think the price will continue to rise into eternity and that they’ll make a killing. Big traders are tuned into how human nature works and they sell at the higher price and you lose…again.
It’s all very complicated, especially if you’re a small trader and aren’t part of the “Good Old Boys Club” which can also include “Good Old Girls.” Those traders are usually well connected in high places. If they weren’t there would never be any bailouts for banks, Wall Street and the big commodities traders…who are usually connected with Wall Street and big banks.
Of course, if it wasn’t for people who should have known they couldn’t afford that big new house, the expensive new car and all the other trappings we think mean a wonderful and happy life, none of it would be possible. If it weren’t for human nature, which can be changed if we want, the housing bubble could never have existed and the economy would never have tanked. The same with the dot com implosion and all the others for hundreds of years, including the current price of gas and oil futures. If we make some changes in human nature, the boom and bust cycles wouldn’t be a way of life and a source of stressors. And, we have the choice to do that on an individual level.
We were fortunate. Some years ago, after selling my retail businesses, we looked into commodities. I saw how the commodities game worked and we got out, in most instances, while the price was still above where we bought in. We also didn’t want to participate in something where if someone wins, someone else has to lose, even if we were the winners. We like sleeping at night without having to resort to drugging our conscious and unconscious minds or compromising our spiritual beings.