Too many times we see a “problem” or a wrinkle in how markets work or are working and we think:
This is a problem
And we immediately think that the only solution is to implement process that will “prevent this from ever happening again.
And that’s just wrong thinking.
What we SHOULD be doing is asking if this situation occurred due to properly functioning market forces or did it occur because of already existing regulations.
As commodity prices soar to new records, the ability of a few traders to hold huge swaths of the world’s stockpiles is coming under scrutiny.
The latest example is in the copper market, where a single trader has reported it owns 80%-90% of the copper sitting in London Metal Exchange warehouses, equal to about half of the world’s exchange-registered copper stockpile and worth about $3 billion.
The problem? One trader controls so much copper.
And this is bad because:
…large holdings do result in a concentration of ownership that could skew prices.
…thousands of new investors are flooding into the commodities markets, either directly or through exchange-traded funds, seeking to take advantage of an expected rise in prices of raw materials as the global economy continues to recover.
Open the market, competition will increase and things will settle out.