“The strong financial upheavals that have occurred periodically since the 1987 stock market crash (European devaluations, Baring Brothers, insolvency in Japan, Mexican tequila, Asian crisis) have popularized the interpretation of the crisis as a primarily speculative phenomenon.
Introduction
Starting from the criticism of the "swelling of the bubble", it is called to "discipline finance capital" and "control international speculative movements." The aim is to prevent "healthy industrial capital" from being drowned out by the "financial idleness" of the "casino-economy." It is totally true that financial hypertrophy has grown in the last two decades, due to the crisis and the consequent emigration of capital towards speculative activity. But the most innovative thing in this field is not so much the magnitude of the sums at stake, as the primarily private and sophisticated nature that all operations are assuming. "
What was previously stated by Claudio Katz in his work How to study capitalism today serves as the basis for starting this work, which is related to speculation, specifically financial speculation, which is indisputably a phenomenon inherent to financial markets.
Etymologically, the concept of speculation, comes from the Latin word speculum which means mirror, by extension this term is applied to the concept of image, that is to say to the “non-object”, to its reflection, to the non-real, to the false. What it looks like but ultimately "is not."
In the field of economics, speculation is the exercise of any type of economic activity whose purpose is only to obtain profits, without mediating the contribution of any product or service that increases the wealth of society. Speculation is nothing other than the falsification of the material bases that sustain the life of society: the productive process.
Now, as previously stated in this paper, we will deal primarily with financial speculation, that is, the action that seeks to obtain benefits in the financial market due to the expected differences in prices, based on the positions taken according to the expected trend.
DEVELOPING
The term speculation is known as the practice of buying at low prices with the intention of subsequently selling at a higher price. Speculation has always been criticized, in popular language and in political discourse, as an easy profit similar to gambling and chance; It has also been held responsible - especially when it joins hoarding - for causing prices to rise and thus harming the consumer. In fact, however, speculation is a normal commercial practice that almost everyone does in one way or another and that serves to indirectly regulate the markets, favoring both the speculator and the consumers. If in a given country, for example, a large wheat crop is obtained, the price will tend to fall and consumption will increase,producing a rapid decline in the stocks of that grain; By buying at a low price to resell later, speculators will create a stock or stock of the product that can then supply the market when the initial temporary surplus disappears. The price will undoubtedly rise, but there will be availability of that cereal and, in any case, the price will be lower than if there had been no one who was dedicated to speculation. In this way, speculation will result in a spontaneous price regulation mechanism.the price will be lower than if there had been no one dedicated to speculation. In this way, speculation will result in a spontaneous price regulation mechanism.the price will be lower than if there had been no one dedicated to speculation. In this way, speculation will result in a spontaneous price regulation mechanism.
The speculator assumes risks like any investor who intervenes in the market: he buys with his money goods that he supposes will increase in price, although without ever being able to be certain of it. The lack of understanding of the economic meaning of speculation, coupled with the trend towards economic interventionism in past decades, led many governments to a system of controlled prices that, naturally, produced serious distortions in the allocation of resources.
John Maynard Keynes reserved the “term speculation for the activity of forecasting the psychology of the market and the word company, or spirit of enterprise, to the task of forecasting the probable returns of the goods for all the time that they last, he was of the opinion that in no way it is true that speculation always predominates over the company. However, as the organization of investment markets improves, the risk of the dominance of speculation increases ”. The economic instruments put into practice at that time prevented the excessive development of investment markets.
The success of speculative activity depends on several factors. One of them is information, but the valuation made by the speculator based on the information available is also important.
The probability of an interest rate adjustment will affect exchange rates. As is obvious, the actions of speculators also affect the market, being one of the determinants of demand. For example, in 1992 some speculators made huge profits selling pesetas, considering that this currency was overvalued. The pressure was such that the peseta had to be devalued three times to reach the level that speculators considered adequate. Other currencies, such as the British pound and the Italian lira, had to get out of the exchange rate mechanism (ERM) of the European Monetary System (EMS). Speculation against some currencies was on the verge of ending the SME in 1993, causing profound changes in the ERM.Although the term “speculation” is often used in a pejorative tone, it is nothing more than a type of investment where the broker takes risks that cannot be hedged. Unlike other economic agents, speculators do not try to avoid risks by going to the options and futures markets to guarantee a minimum profit, thus avoiding fluctuations in exchange rates or in the prices of raw materials.
Financial Speculation.
There are two main axes along which financial speculation runs on a global scale. The currency markets and the stock markets.
The Foreign Exchange Markets.
All exporting companies from all countries of the world, which sell local goods and services abroad, at the end of each operating cycle need to convert their income (dollars, euros, rubles, rupees, etc.) into the currency of their country of origin. In their respective countries, companies must pay salaries, raw materials, taxes and various benefits, which can only be satisfied with local money. The inverse case is that of importers, those who obtain local money and need to convert it into foreign currency to start a new cycle. As a result of the need to buy and sell currencies that economic agents dealing with imports, exports and investments in different countries have, a foreign exchange or exchange market is created.As long as the purchases and sales of foreign currency are carried out according to the needs and at the pace required by the activities of these companies, these operations constitute an essential element for the development of the real economy. Under these conditions, one cannot speak of speculation.
There is speculation when currency trading is aimed at making a profit outside of the real economy. There are different and every day more varied forms of speculation, (round trip operations, arbitrage, anticipation of the exchange rate, derivative products) etc.
Speculation is typically aimed at taking advantage of a particular juncture during which the same currency may have different prices in two different markets.
For example, this is possible when in the city of London the British pound costs 70 cents on the dollar, while in Paris the same pound costs only 60 cents. The speculator will buy Pounds in Paris to sell them in London. The operation in question does not bring any wealth to society except for the speculator, who will have received a profit of 10 cents on the dollar for each pound sterling sold. The untimely oversupply of Pounds in London acts in the direction of the devaluation of the Pound, causing a wave of instability that negatively affects the entire economic system of the country. In order to absorb the blow, the Central Banks of the countries are forced to sacrifice their reserves to stabilize the price of the currency again.If the proportions of speculation exceed a reasonable volume of reserves this can lead to the bankruptcy of the system with all the social consequences that this implies. The Bank of England itself was the victim of a speculative attack.
The economist and Nobel Prize winner in Economics James Tobin points out that, of the 1.3 trillion dollars exchanged every day in the financial market, very little has to do with productive capital, which goes from saving in one country to investment in another. Currently the developed world transfers to the “developing” countries about 200 billion dollars annually.
Most of the transactions in these money markets are speculative operations that have no direct link to desirable investment flows. It is not about productive capital, which is the only capital that these countries need.
The Stock Markets, The Stock Exchanges are stock markets where companies are financed, this is possible from the issuance of Bonds and Shares. The Obligations constitute loans that must be repaid at a fixed date paying a certain interest for the use of the money, for this they are called fixed income securities. A Share constitutes a title of property of a company, which is divided proportionally according to the number of shares among the shareholders, the benefits in this case are not guaranteed, which is why they are called variable income titles. In a very simple way, the stock market is a place where companies can go to get a loan (obligation) or to get partners (action).
Up to this point, it is called the Primary or Issuance Market, and it serves to channel savings into investment. So far there is no speculation.
The problem arises from the Secondary Market, or renegotiation, within which speculative operations are sheltered. Due to the fact that the more sought after a share is, the more its price increases, mass purchases are originated to raise the prices of certain types of shares and then sell them once they have gained more value. Here too there is a profit without contribution to society. By artificially raising the price of a stock (whether this is intentional or not), the wealth of society is not increased. Moreover, when the price of the shares is well above the replacement value of the invested capital (in the company), the real profits can only fall and the more they fall, the greater the dependence on the speculative profit of coming. out of the bag.
Speculation can be seen through the explosive growth that has been observed in the equity markets. As an example, we can cite the prices of the New York Stock Exchange, these grew by only 25% between the years 1965 to 1984 (when economic growth was still high) between the years 1985 and 1999 (when economic growth tended to stagnate, below 3.% per annum) stock prices did so at 1100%. What were they sharing?
Because the rate of economic growth is incomparably lower than the rate of growth in stock prices, earnings expectations can only come from the redistribution of existing wealth. The future money invested in this process cannot be anything other than "virtual money".
Speculation and capital markets.
Much of the operation in the capital market is made with money that does not exist outside these markets. It operates with money that is created by these operations. Brokers, operators, speculators,… of the capital and currency markets, operate on credit in the same way that informal credit is obtained in the real economy.
Both in industry and in commerce, products and services are supplied continuously, but these products and services are billed periodically, in the same way that we obtain credit from supply companies (telephone, water, electricity,…) that we consume continuously. but we are billed periodically.
If an individual wants to buy shares or currencies, the normal thing is that the bank to which he orders the purchase asks him for the previous deposit of the amount of the operation or will require an authorization to charge the amount of the operation in the current account and will check that he has enough money, before doing the operation.
In the capital market, it operates in the same way as in industry or commerce, exchange and stock agents allow some clients to operate continuously and bill them for their operations at the end of a certain period (a month, a week, one day). For each invoice, only the difference between the purchases and sales of the period is settled, plus the operating expenses. This allows large volumes of transactions and therefore, although they represent a risk, they are not only accepted but also sought after by exchange and stock companies and other financial intermediaries, because they report large commissions.
This operation involves the creation of money, which only exists for this purpose and has no material counterpart anywhere. This financial money, thanks to the interested application of telematics, has reached an astronomical volume. A study by Maurice Allais… estimated the financial volume at 38 times higher than the value of merchandise sold internationally, more recent studies say that it is already more than 60 times higher. The same can be said of the stock market operations, where the volume of speculative operations is much higher than that of investment operations.
The commissions and other expenses that this market causes, plus the benefits that are achieved, are transformed into purchasing power that will be used in the real economy. Both expenses and profits will be transformed into purchasing power of services and products of the real economy, and have an impact on a lower return on both investments and work in the real economy, because both the expenses and the profits of the financial economy they are transformed into purchasing power that can only be materialized in the real economy.
As long as profits are maintained within the world of finance, the only thing that occurs is an increase of money in the financial economy, but the moment that part of this money passes to the real economy in the form of expenses or materialized benefits, they are usurping purchasing power from the real economy, because the products and services of the real economy cannot be obtained within the financial economy.
Who has money, who is rich, can have credit, with this credit he can get benefits within the financial economy and these benefits can be transformed into real purchasing power. In this way, the rich have the capacity to seize what belongs to others and therefore to the poor. It is not surprising that the poor are getting poorer and the rich getting richer.
If the money obtained through speculation and the creation of money in the financial economy can pass to the real economy of goods and services, if one money is not different from the other or if they are convertible, if the money that has been created or earned Through the financial economy it can be used to acquire goods and services, it is cheating, it is cheating, it is stealing.
The fact that this practice is not only possible but even legal in today's world is just one of the many flaws in today's monetary system.
This problem can only be solved with the implementation of a responsible currency to replace the current anonymous currency.
This is now feasible through the generalization of centralized magnetic cards in the form of checking accounts to the monetary authority. Only in this way can financial speculation be eliminated and the creation of money that the system needs socialization achieved.
The Need for Control of Financial Capital.
The instability of the financial markets is transmitted to the "real economy" (the one that dresses and feeds us) through the instability of exchange rates and stock prices, this instability constitutes one of the most important causes of the rise in real interests that hold back domestic consumption and business investments, also deepen public deficits and incite, pension funds that manage hundreds of billions of dollars, to demand higher dividends from their companies. The first victims of this hunting party for profit are the employees themselves, whose mass dismissals drive up the stock prices of their former employers.
Based on the experience gained in previous crises, it is possible to affirm that “Financial markets are inherently unstable. Imposing market discipline means imposing, instability and how much instability can society take? Market discipline must be complemented by another discipline: maintaining stability in financial markets must be an explicit objective of public policy. "
In the absence of a public policy, today it is citizen organizations that are taking up this challenge. In response to the instability and precariousness that the neoliberal globalization process implies, ATTAC, together with the Citizen Action Movements of various countries, have raised the Tobin Tax as an effective measure to stop the advance of "market fundamentalism" that threatens to destroy, the very sources of life and of the wealth of society, “man and nature”.
The Tobin Tax is a tax that is intended to deter financial capital from engaging in speculative operations. This consists of charging a small tax for each transaction to buy and sell shares in the stock market and in foreign exchange operations.
Due to the astronomical sums that are exchanged in these markets, the volume of taxes collected at the level of each country would allow solving the most urgent problems posed by poverty in each of them.
The Tobin Tax is a subject of universal importance, it is currently the subject of debate in the parliaments of various European countries, among which Finland, France, Germany, Switzerland, Great Britain, Belgium, Ireland, Spain and the European Parliament can be mentioned. in addition to Australia, Canada, the United States, Brazil, Argentina and Chile.
Arbitration and speculation
Both arbitrage and speculation are buy / sell operations that are carried out in order to obtain a short-term capital gain, regardless of the company in which it is being invested. For this reason, arbitrageurs and speculators are not very well regarded by most investors, although the latter would be willing to practice it if they had the necessary information.
Arbitrage occurs when a security is traded in several markets and, due to local circumstances, a price difference occurs. The arbitrageur then buys where it is cheapest and sells where it is priced more expensive, thereby making a profit. Although at first glance you only see the profit of the arbitrageur, and hence his "bad reputation", the truth is that it is useful for the market because it helps prices to be compensated: if where it is cheaper, more purchase orders enter, the price will go up. And if more shares are sold where it is more expensive, the price will go down.
Los especuladores también son “oportunistas” puesto que compran con la idea de vender a muy corto plazo y obtener una plusvalía. El ajuste, en este caso, se produce en el tiempo. Los especuladores entran y salen del mercado, aprovechándose de que los precios han bajado y vendiendo cuando los precios suben. Como en el caso del arbitraje, también resultan útiles puesto que hacen que el mercado recupere con mayor velocidad su equilibrio. En cualquier caso, una cosa es aprovecharse de la situación, por todos conocida, y otra es utilizar información privilegiada. En ese caso, se trata de un delito y debemos denunciarlo.
Arbitragers and speculators are also investors, although their buy / sell operations are carried out in the very short term and, as we have seen, they play an important role in the markets. In order to carry out these operations, it is necessary to be very well informed and aware of the markets, which is why, in general, most small investors, who allocate part of their savings to the Stock Market, make long-term investments and do not they often act as arbitrageurs and speculators.
In any case, it is worth remembering that investment in the Stock Market provides shareholders with benefits through three channels: dividends, preferential right in capital increases and capital gains. Bondholders, in turn, in addition to being able to obtain profitability through interest, can earn money by liquidating their securities and obtaining a capital gain.
Speculation in the future market
When a firm cash position is held or expected to be held and no hedging is taken, it is also speculating. Such action must be classified as passive or static speculation, unlike the one previously stated, which refers to active or dynamic speculation.
The high degree of financial leverage or "leverage effect" achieved in futures contracts makes participation in these markets especially attractive for the speculator; For this reason, those who carry out operations of a dynamic speculative nature know that the important multiplicative effect of capital gains will be very gratifying when the trend in prices is correctly predicted. Precisely because of the high degree of leverage that futures contracts incorporate and because of their symmetrical evolution with respect to the generation of profits and losses, speculators must know that the same multiplicative effect, but in the opposite direction, occurs when they erroneously foresee the stock trend,Therefore, it is advisable to adopt precautionary measures to complement the speculative operation.
Speculation is very positive for the proper functioning of the market, providing it with a greater degree of liquidity and stability, as well as a greater degree of breadth, flexibility and depth in the price of contracts. It should be considered that the trading counterparty of a speculator is, in many cases, someone who carries out a hedging operation.
Table 3 shows the main dynamic speculative operations, depending on the forecast trend, the action to be followed in the futures market and the objective pursued by the speculator.
| Table III:
dynamic speculative operations
|
Conclusions
Although speculation is classified as very positive for the proper functioning of the market, providing it with a greater degree of liquidity, stability, breadth, flexibility and depth, and allowing it to recover its equilibrium more quickly; It is no less true that this action is detrimental to the real economy, since the only thing that occurs is an increase in money in the financial economy, but at the moment in which part of this money goes to the real economy in the form of expenses or materialized benefits, purchasing power is being usurped from the real economy, because the products and services of this economy cannot be obtained within the financial economy.
The fact that this practice is not only possible but even legal in today's world is just one of the many flaws in today's monetary system.
Bibliography
1.-Katz Claudio, How to study capitalism today.
2.-Martín, José Luis and Ruiz, Ramón Jesús: The investor and financial markets. Ariel Economy.
3.-Muñoz To Leopoldo, Why the Tobin Tax? (part 1)
4.-http: //www.iberfinanzas.com
5.-http: //www.eumed.net
6.-http: //www.wanadoo.es
7.-http: //www.alltheweb.com
Download the original file
