It’s really hard to defend the efficient markets hypothesis. The theory seems so unrealistic. I recall that when I began blogging in early 2009 the price of oil had just plummeted from $147/barrel to about $38/barrel. It was hard to explain to people that the price of $147 was completely rational, given what investors knew in mid-2008. That demand from developing countries had driven prices sky-high, not nefarious “speculators.” Thus I had frequent debates with commenters.
But guess what happened. When output recovered in the developing world prices shot right back up. Not all the way to $147/barrel; after all, output is still quite depressed in the developed world. But well over $100 for the so-called Brent crude (West Texas prices are currently distorted by pipeline limitations.) So now we know that speculators weren’t the cause of high prices in 2008, it was actual demand for oil.
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