IMO you are mixing apples and oranges. With stocks they can just increase the number of shares not so with commodities. Commodities are negative sum, not zero sum after slippage and commissions.
I re-read PTJ article a few times. I appreciate it, it is truthful, but I can't help but find it hypocritical. He is one of the purest capitalists there ever was and he is calling for trade policies. Its nothing much new many have said the same thing but his independent research is noteworthy.
No he is calling for protectionism and he is right. Too much give and not enough take with the current relationship. We give you our mfg and you steal our tech for Chinese consumer goods at deep discount.
Tudor explains that the economic theory which supported Nixon's choice of free floating currency was the theory that the currency ratios will adjust and self correct the imbalances. Then he points out China devalued by 50% and pegged. How can you call for a free market approach when the market is not free? Tudor's points are so obvious, yet so few seem to see it. I took the econ classes in college. I got the same free market indoctrination. Econ is about holding the status quo holding things in place and tweaking to see the margins. However, the key to all analysis is you must examine the assumptions going into the model. The free floating currency model assumes that the currencies are floating and not being manipulated. Now that they are - you have to make a new model. We are not in the "free market model" and the China effect is not just at the margin.
psytrade - nice reference (Night of the Living Fed). From pg 16: Very Brief Recommendations 1) Emphasize U.S. quality companies, which are still cheap in an overpriced world. 2) Moderately overweight emerging market equities. 3) Moderately underweight the balance of global equities. 4) Heavily underweight lower quality U.S. companies. 5) Carry extra cash reserves for a volatile market with insecure fundamentals. 6) For the very long term (20 years) overweight resources, particularly if they have a sharp decline. (This is my personal view rather than that of GMO, which on this topic is agnostic.) read more here: http://www.gmo.com/websitecontent/JGLetter_NightofLivingFed_3Q10.pdf Fareed Zhacharia interviewed China's Premier Wen Jaibao in early October. Wen Jaiboa stated that the Chinese stimulus package was ~ 10 x the size of the US stimulus (measured as a % of Chinese GDP). Clearly China is also captive to the bilateral relationship it has with the US. Capitalism always acts in it's own best interests. America evolved from being a colony into a super power due to the drive of its citizenry, the availability of abundant resources, and cheap energy. The interests of American wealth seem to have significantly diverged from the American nation. I'm not a fan of Lester Thurow. Judging by all the zero sum references, I suspect many here are familiar with his writtings. In "The Future of Capitalism" (1996) he outlined elements of the dynamic currently in play. The political class and the servants of the wealthy are doing their best to band aid America's aorta. The path of least resistance is always down.
Common misconception - you are overlooking the extremely positive sum nature of risk transfer from the very risk-averse with poor forecasting ability (e.g. typical small commodity producer or consumer) to the relatively risk-neutral with good forecasting ability (large commodity house, or skilled speculator), and the widespread benefits to producers and consumers of being able to lock in relatively stable prices, which makes their business more predictable (thus worth more - people will pay more for earnings stability) and has knock-on benefits like banks being more willing to fund businesses whose earnings aren't all over the place. Being able to increase the predictability of your cashflows or inventory supply is extremely valuable, far more so than the tiny cost of brokerage. So although two guys trading with each other on the pit floor are slightly negative sum, the commodities futures markets as a whole, once you include the effects of risk transfer from producers/consumers to speculators, is massively positive sum. That is, after all, why they were invented in the first place, and why they are not regulated out of existence as socially useless gambling parlours.
Well Said Derivatives and speculators always get painted with the black brush. There are no thank you's for mechanisms that for the most part promote price stability.
Interestingly, most gold producers have ceased their hedging operations, because investors have clamored for them to be fully exposed to increases in the price of gold. Arguably, that's made the run-up sharper than it would otherwise have been. Which will make the decline, once we get a new bear market in that area, very sharp: prices will fall into a vacuum because no one is going to be there to try to stabilize them. Basically the same thing in reverse. It should be a case study in the usefulness of commodities speculation as you laid it out above.
It seems that this article was written by a Indian politician in the interest to promote Indian stock market , not by a American trader. And some of the facts are obviously wrong. For example, this one "On Jan 1, 1994, China devalued its currency by 50% in a single day" OK, in 1989, 1 US dollar = 8.7 RMB, now 1 US dollar = 6.7 RMB. It seems that if there were any change on that day, it must have been in the other direction.