Thursday, 4 February 2010

First law of economics isn't taught on an accounting course

Sometimes, just sometimes, the madness of the commodity markets briefly makes sense.

The price of crude oil has seen some of the more dramatic moments of market insanity in recent years soaring up to absurd heights to help trigger the international recession then plummeting in panic as it became clear that there was more than enough oil to fuel the worl for the time being. At both extremes the exaggerated price was not the inevitable collision of worldwide supply and demand but rather the behaviour of commodity buyers artificially creating and then removing demand as they expected their colleagues to be even more excitable than they themselves.

Now, though, OPEC is talking sense, "The risk is you see a lot of oil in the market and no one is buying it. Then the price will come down."

Something very similar happened to money, more specifically lending, in what has come to be known as the 'credit crunch'.  This was in a financial market that some believed was so perfect that it couldn't fail.

How long will it be before the oil market or the financial markets fail again?

At the Accounting and Bookkeping College we aim to teach you how to measure and record movements of money. We can't, however, show you how to speculate successfully. whether it be in oil or financial derivatives or even property, because speculation is a skill that requires intuition rather than sense.

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