One of the certainties associated within any market over time is that an adverse outcome will inevitably happen that will negatively affect investors as well as the public in varying degrees. Upon this transpiring, the allegations and finger-pointing begin because someone must be held responsible for inflicting such pain and they must be restrained by more simple-minded legislation by our Government. The truth is that someone will be blamed so our political establishment will appear to be doing something, and something is better than nothing regardless of how inane it is on their part. The latest hullabaloo is blaming oil speculators for last year’s run up in oil prices, and it only took them a full year to reach this mindless conclusion. I realize it is popular to point to these traders because it appears that they are a bunch of rich people stealing from common folks so they can stuff more money in their pockets. However, once again these are lies being perpetrated against what has obviously become an easy target. This accusation makes absolutely no sense when you think about it in the context of a market. Various speculators were taking positions in the market on both sides of the oil trades which means that some speculators were positioning for oil prices to increase while others were positioning for oil prices to decline. One of these positions was successful and the other was not, which specific one should be punished? Just the simple fact that both of these trades are happening in the market at any one time is proof enough that speculators could not have caused the run up in oil prices. Also, if it were true, then what happened to the speculators when the market collapsed from July to the end of the year, did the speculators cause that too? The answer is clearly no because speculators are simply market participants just like everyone else investing their money; they are simply positioning an investment in anticipation of some market event. In fact, they are supplying liquidity that allows for a more robust market and their capital should be a welcomed occurrence in a healthy market.

The Government will continue to propagate this type of crude scrutiny, but do not be lulled into their simplistic and disingenuous judgments. These are the same people that blamed Short Sellers back in the fall for the drop in the stock market; even going as far as banning short selling for a period only to find it made no difference in the end because once again they also are just market participants positioning an investment while other participants are positioning against them. Pointing a finger and clamping down on one participant in the market and not another simply has the effect of reducing liquidity to the whole market, and having robust investing on both sides of all trading is what makes the market discover its true value. The law of supply and demand will be the true determinant in the pricing of assets, and it is important to remember that in the short run it is simply the “perception” of that supply and demand that is likely the cause of any temporary price aberrations.