You say they have a lot more information than a chart trader, and that is certainly true. They can see demand trends at a million different stores, new low-cost processes coming on line, and so on. But my argument is that the net effect of this "information" - and the unpredictable ideas and inventories resulting from it - is to make the marketplace less coordinated, because people don't know how to adjust to it, and react to it non-redundantly.


Meaning, suppose there is no information, so the buyer and seller both always just hedge as soon as they know they will need to, 9 months out, on a regular basis. Now suppose, suddenly, there is unusual "information" so the buyer doesn't hedge right away. Is the seller to assume the buyer is out of business and will never buy, or is he to assume he will eventually hedge double to catch up? Should the seller hedge double right away, or wait?


Any time a participant in the supply chain takes an irregular action, or an action outside pattern, it plays havoc with the next guy along the line, who can only see the points immediately to his left and to his right. Serial changes in supply and demand become impossible to extrapolate or plan around. People start to react to the same supply-chain-external or supplementary information at the same time, without knowing the other is doing it, and it swings double back the other way.


So when you say "information," understand that the real information is simply whether your counterparty has accelerated, postponed, or will never come back - whatever ideas have gotten into his head. If it were really possible to make much use of extra-supply-chain information - meaning information other than your counterparty's patterns of how much he is willing to pay for how much in what frequency, Soviet Agriculture would have been a huge success.


All information basically comes down to two categories - how much I know I will be buying, and how much I know my counterparty will be selling. If I know I will be buying less, and my counterparty knows this too, he may sell less, making it appear to me as if he has less to sell...


Blah, blah, blah...


The point is, you have to reflect your own conditions to your counterparty, not your beliefs about his conditions back to him, and him likewise to you, so that neither has any clue of actual conditions. Otherwise, it's just oscillating redundancy, and a feedback loop. What if I stock up on extra coffee because I think the price is going to rise, and the producers also hold back more inventory because they also think the price is going to rise, and the overhang at both ends is invisible?


If people could figure out what other people wanted to buy or sell other than by looking at what they are buying and selling, the USSR would have been a whole lot more prosperous. When people try to time the market, it becomes extremely choppy, because everybody has to extrapolate everbody else's blip, it's really no more complicated than that.


eLROY