I use this space often to write about things I am not an expert on; politics, theology, family relations, even running marathons, for today that changes. There are just a few things that commodity traders know for certain so it’s a good thing I write blogs rather than books. My knowledge boils down to one concept and three simple laws.
The concept is that commodities are things needed by a large number of people, of which there is generally a large supply. The idea being there are large number of players, plenty of market makers, plenty of buyers and sellers. Additionally, if you are talking about the same commodity, there is little difference between what I have for sale and what you have for sale. Gold, lumber, cotton, corn those are all commodities, as are treasuries and currencies. Fashion items, collector items, specialized equipment are not.
Once you understand that concept there only three laws you need to remember about commodity trading. Number one, like your wife the market is always right, you can argue the logic, you can claim it doesn’t make sense, but commodity markets tell you with no uncertainly under present conditions and anticipated future events what an item is worth. Yes, it will change, next month, next week, tomorrow, or in the case of some commodities the value will change tonight while I am sleeping.
The second thing commodity traders know for certain is law number two, if you covet the commodity of someone else and they won’t sell, raise the price you are willing to pay. Want more crude raise the price, need more wheat raise the price, running low on milk raise the price. Get the price high enough and you can own what you desire.
The third law, as true as any found in science books, if you have a commodity you can’t seem to sell, lower the price. Make the deal sweet enough and you can sell anything. Don’t believe me, have you ever been tempted by an infomercial?
You identify commodities not because they are traded on an exchange, but by how big the market is and how its availability and demand react to price movement. I would argue that cell phones and computers are almost commodities today. But a scary item that may have become a commodity was brought to my attention by our President and his recent jobs package. It left a sinking feeling in the pit of my stomach.
O’Bama said to increase jobs in the US we need to lower the cost to the employer through less taxation and some tax credits. I am all for lower taxes, but “Cheapen the cost of an employee and employers will buy” is what this commodity trader heard. That’s law number three! The point is not to criticize his actions but to point to the possibility that jobs, at least some jobs could or have become a commodity. That has serious implications.
Today in the US (and in the world) we have more workers than jobs, if the goal is for everyone to have a job and if your skill set is a commodity, one not much different than someone else’s, my trader instinct says your wages will decline The market is saying “you have to do this job cheaper if you want it” And us commodity guys know, “The market is always right”.
The sinking feeling for me, anyone with a computer, internet connection, phone, and an understanding of my one simple concept and three rules can do most of my job. How about your job, how many others around the globe can and would like to have the opportunity to do your job, to collect your paycheck?
To avoid wage decline for the US worker, to create jobs in America, America has to differentiate itself. It cannot become just another country, like everyone else’s commodity, I mean country. Not just another place to live and work. It needs to have the greatest freedoms not less freedom, not more fairness but equal justice, not equal taxes but a better a tax structure, not a place to build a business but the best place to do so. Its work force can’t be above average it needs to be the best. From the tax code to the work force, from laws to opportunities, America needs to be a deal so sweet that everybody wants to be here and invest here.
Maybe our next President should be a commodity trader, rather than a lawyer, or politician. I know one commodity trader that just might need a job!
Better yet let’s get someone like Billy Mays who first task as president would create an infomercial and say to the world businesses leaders, “American has a deal for you!…”
David
