Wednesday, November 19, 2008

Pattern Recognition #5 - Market Manipulation

During this year, we have seen gas prices range from $4.25 a gallon a few months ago to $1.50 today.

Some of us immediately suspected greed and manipulation behind these prices. Then apologists appeared and tried to persuade us that this was just the law of supply and demand in action, that it was simply that people in China and India were now using more oil.

So does this sudden price drop mean that China and India cut way back on consumption these last couple months?

Did Americans suddenly cut their driving in half?

No. We still drive the same distance to and from work, school, church, the grocery store, the hardware store, the office supply store, the dry cleaners, the doctor and whatever other places we need to go.

So the only reasonable conclusion is that it was the manipulation of speculators, not supply and demand that drove prices up.

It is the same sort of thing you can see in the stock market these days, when all of a sudden the price of one stock will run up $30 in the morning and drop by $20 in the afternoon. Or run up $30 this morning and go down $40 by tomorrow. These kinds of price fluctuations are not driven by any real change in the supply and demand for that company's products.

That is why we have to be careful about how we invest. There is a lot of manipulation and artificial influence in the market. What drives this? Greed. Can greed and manipulation be eliminated from the market place? Probably not.

We have to watch these things carefully to recognize the patterns. There are things that have real value. If you can, hold on to the things that have real value and eventually the true law of supply and demand will bring things to a right and fair price.

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