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The Food Bubble (2010)

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Re: The Food Bubble (2010)

#51

Post by rdl »

hooande wrote: post #42
BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

I thought the human angle of the piece was far overblown. The underlying story being presented is "Goldman Sachs raises prices and people starve as a result". I think that was mostly to add a dramatic point to the article. In reality it's a "look at how all of these pieces fit together, and here's how Goldman Sachs hacked the system" story. While hackers love that kind of thing, we're a relatively small market and a…

Unfortunately, people at the margin DO starve. All economic activity happens at the margin.

What usually happens is a country at a large scale imports less subsidized food commodity, and this limits government distribution of that commodity -- they usually stop some feeding centers, which makes the marginal trip more difficult or impossible for some people.

It might also lead to scaled back or eliminated aid programs.

Re: The Food Bubble (2010)

#52

Post by edu »

forensic wrote: post #31
BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

This community is exactly the type of testosterone-driven money-obsessed community that would create a Goldman Sachs Commodity Index that will cause starvation, and then absolve themselves of responsibility due to some free market arms-length ideology. It's not a coincidence that you're disturbed by the comments. Wall Street entrepreneurs and Silicon Valley entrepreneurs are fundamentally very similar in mindset and…

The not-so-small difference is that tech-entrepreneurs (in SV or anywhere else) are creating real value and "WS entrepreneurs" (which I guess you mean brokers and similar) are just betting and not creating real value.

Re: The Food Bubble (2010)

#53

Post by edu »

hooande wrote: post #42
BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

I thought the human angle of the piece was far overblown. The underlying story being presented is "Goldman Sachs raises prices and people starve as a result". I think that was mostly to add a dramatic point to the article. In reality it's a "look at how all of these pieces fit together, and here's how Goldman Sachs hacked the system" story. While hackers love that kind of thing, we're a relatively small market and a…

So what happens when you've to live with $5 a week? This $1.50 blocks you from buying any bread.

Re: The Food Bubble (2010)

#54

Post by viandante »

I just don't get the point. You buy something if you expect its price it is going up. If the price is going up, it means there is higher demand. If there is higher demand, it means somebody does actually need more food (think of China and India).

I think the whole point of this article sounds a bit ideologic. Also, again, no really good data to prove his point.

Re: The Food Bubble (2010)

#55

Post by Cushman »

jcampbell1 wrote: post #35
pg wrote: post #2

Wow. I had no idea this happened. I'm surprised this story has not had more attention.

> Wow. I had no idea this happened. I worked in commodities and read the article. What happened? Are you talking about the forced long money? Yeah, we and every hedge fund on the planet skimmed that pool. The dumb money doesn't move the market these days.

We had no idea that bankers literally, directly made people starve to death, which is what happens in the real world when you double the price of bread for a month to make a buck.

The fact that the bankers among us can't see anything odd about this, let alone shocking and disturbing, is still more food for thought for those of us who care to live through the winter.

Re: The Food Bubble (2010)

#56

Post by Andrew_Quentin »

tpatke wrote: post #39
lawnchair_larry wrote: post #37

Earlier quoted context omitted.

This comment is...amazing. Much like Paul, most actual people are genuinely shocked about this. It is one hell of a story. The general population does not understand how markets work. Billions are hungry. The streets are full of protesters worldwide. Retirement funds are gone. Markets are failing. Countries are failing. These are humans , who just want to eat . And for what? To turn $100 million into $200 million? Th…

First of all - I wasn't making a value judgement. Personally, I agree with you - it is reprehensible and disgusting. That is part of the reason I don't work at Goldman's anymore. I always found it a bit embarrassing to be associated with them. By "good" bankers - I ment the one's making all the money. Not those who are morally good. Second - it is how things work. Not just in commodities, but in everything Goldman's…

Maybe it should be illegal.

Re: The Food Bubble (2010)

#57

Post by nandemo »

wanorris wrote: post #17
latch wrote: post #13

At the risk of being the ugly capitalist in the room, it's worth mentioning that farmers have long used financial instruments to help them hedge against very severe volatility in their industry. Volatility caused by Acts Of God[1], like droughts and diseases. So while I'm all for more regulations, I think we shouldn't demonize an entire sector without considering that some of what it does can and has be helpful. [1]…

Did you read the article? It talks extensively about how the markets were set up for exactly this purpose, and that the balance of long and short positions for the futures kept the market relatively stable in exactly this way, until the relatively recent (1990s) influx of commodity indices pushed a whole bunch of money purely into long positions and destabilized the market by, effectively, buying far more futures con…

It's not true that long-only funds destabilize the market. Those funds invest only in long positions, but in the futures market a long position always has a short counterpart. It's like stock options: in order to buy a call option you need someone to sell it to you. That seller will be short on the stock.

The author of the article doesn't seem to understand that. He says:

> The managers of this new product would acquire and hold long positions, and nothing but long positions, on a range of commodities futures. They would not hedge their futures with the actual sale or purchase of real wheat (like a bona-fide hedger), nor would they cover their positions by buying low and selling high

But that is irrelevant since there were other market participants selling the futures. The author also fails to understand that rolling a contract implies covering your position at contract expiration and then buying another contract.

Re: The Food Bubble (2010)

#58

Post by ArchD »

justincormack wrote: post #50
ArchD wrote: post #36

I'm wondering if there's something preventing the government of vulnerable countries from buying futures themselves to shield their own people from violent price fluctuations like these, i.e. hedge against price increase for food commodities that need to be imported. Trading commodity futures may be inaccessible to ordinary people, but I don't see why the government of a country, even a developing one, cannot do it,…

That would make the problem worse though, by adding more demand for futures. They should sell futures to take advantage of raised prices now for future production, taking profits and driving prices down...

Maybe what I was suggesting wasn't clear enough.

If you need food in 100 days, you can pay for the futures for that day, or in 100 days the actual spot price, whatever it turns out to be in 100 days. You generate demand for the futures or the actual commodity, not both. By acting early, well in advance, you could get a better price if the price is going to go up. Even if you have zero idea where the price is heading, by buying futures continually well in advance, you could smoothen out the volatility for yourself.

So, why would it make the problem worse?

Re: The Food Bubble (2010)

#59

Post by mike_esspe »

ramanujan wrote: post #12

I usually don't do this, but this article is long. The summary (tl; dr) is as follows: 1) Large institutional long investments in a certain type of wheat future (Chicago soft red winter) started crowding out the real customers of physical wheat, such as bakers. 2) Because wheat varieties are moderately fungible/exchangeable, the downstream bakers started to use a different brand of wheat (Minneapolis hard red spring)…

Did the article explain why that second class of wheat wasn't replaced with another (cheaper) staple food?

Re: The Food Bubble (2010)

#60

Post by sammathews »

thaumaturgy wrote: post #25
BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

For what little it's worth, a lot of my commentary on HN for quite a while has been centered around the effects of things on real people -- whether it's UI, buggy software, or poverty. And those conversations have generally not gone very well. So I've recently started giving up. HN is just not the place for that sort of thing. It's a place where the audience-participants want analysis, they want technical details, th…

I can't speak for others on HN but I come here seeking knowledge, to understand. Not as forum for activation. This knowledge is then to be used to take action in the real world.

That may not be through pushing a cause or donating to a charity, but by getting myself into a position of greater power and authority to make a real impact when I can make an impact.

I see articles like this as cards at my disposal, that I will refer back to when the time is right and the chance is there, to make a dent.

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