leverage and hedging

[Picciotto, Sol]

Do you have any evidence for your assertions, other than having talked to a Bear Steans analyst?
Have you read any of the research papers on either commodity futures or financial futures, such
as the work by Holbrook Working which I mentioned? There is a major difference between dealers
who hold inventory and a producer, such as a farmer, who merely needs to hedge a price. The
research I cited shows I think very convincingly that it is inventory-holding which provides the
basis for a market in standardised futures, as opposed to simple forwards contracting, which is
all a farmer generally needs. Of course, a major oil company holds inventory, and is unlike a
farmer. 

cheers

sol


> ----------
> From: 	boddhisatva[SMTP:kbevans at panix.com]
> Reply To: 	lbo-talk at lists.panix.com
> Sent: 	Thursday, October 01, 1998 4:45PM
> To: 	lbo-talk at lists.panix.com
> Subject: 	Re: leverage and hedging
> 
> 
> 
> 
> 		To whom...,
> 
> 
> 	It is definitely not a falsehood that farmers or anyone else that
> sells or uses commodities hedges in the futures market.  What is true is
> that there is a lot more speculative trading than fixed hedges, but the
> two go hand in hand.  A Bear Stearns analyst explained to me that
> petro-product users can lock in prices up to five years into the future.  
> Naturally, they try to unwind those position if they think they can lock
> in a better price and they may be forced to trade out of taking delivery
> if the price goes up.  That's where the fun begins.
> 
> 	Punters can and do drive prices up and down but they can only play
> for a limited time.  Eventually, large institutional sellers or buyers
> come in and the traders have to go the other way.  If this wasn't true,
> why would traders run scared at any rumor of changes in industrial output
> or demand for a commodity?  Real producers/consumers of commodities take
> positions, and unlike day traders you can't play chicken with them.  It's
> very frightening for a futures trader to go up against someone who
> actually intends to take delivery at the strike price.   
> 
> 
> 
> 	peace
> 
> 
>