If you’re a free marketeer, perhaps you’ve let yourself be put on the defensive in conversations where someone is complaining about the high cost or price increases of this or that?
Gas is a common example. "Those greedy oil companies," and then we’re left trying to explain how in "real, inflation-adjusted dollars" (you’ve already lost them) that gas prices aren’t much higher than they’ve ever been. And, also, higher prices mean (typically) shorter supplies which means that combined with those higher prices and higher revenues, investment risk is diminished so capital (like your 401K and IRA dollars) flows into exploration, mining, production and wholesale distribution. This proceeds until those competing investment dollars shave margins (lower prices at the pump) to paper-thin tolerances where the first hiccup starts compromising investor return and capital begins flowing out of oil (probably to one of the other "high-priced" commodities the local news is wringing hands over and trying to scare the bejesus out of you with their interviews of "working people" trying to "make ends meet" at the local supermarket).
I have a better idea. Next time, just tell them that if that’s the
case, it looks like a good buying opportunity — to hedge the price
increase by going long the commodity.
Gas prices "skyrocketing out of control?" Call your broker or open
an online account and buy a thousand barrels of crude. You don’t
actually have to take delivery. It’s just a contract for 1000 barrels
at a certain price anytime between now a date certain. As the price of
gas keeps "spiraling to record highs," the value of your contract
increases. Now, when you see prices level off at the pump, you just
sell your contract and the profits have offset the higher prices you
were paying. Or, if prices don’t level, then just roll your contracts
out another several months and let your profits ride. (This assumes
that your pay and benefits haven’t been "slashed to the bone" with more
"deep cuts expected.")
Of course, this all requires that "average people" so accustomed to
playing the victim actually seize an opportunity, becoming "part of the
problem." What will they tell their friends when, rather than having to
"make tough choices" between "feeding their kinds and buying gas so
they can get to work," they instead profited "off the backs of the
But it could be worse. You could have also advised them to go long
some hundreds of bushels of corn futures, which they might have been
inclined to do anyway since they heard about how ethanol is going to
"save the planet" and "reduce our dependence on foreign oil." And now,
poor Mexicans are having to pay three times as much for their hot-off-the-grill tortillas,
which the article reminds us is a "crisis;" one which, again, they’d
have profited from. You know, "off the backs of little guys."
(Inspiration from Gary)