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Matt's Market Insights


Ahh ... supply and demand, the two magical forces that free market capitalists hang their hat on. Conventional economics would tell us that the price of any asset is a function of supply and demand, and is typically set at the intersection of these two curves, see below. This relationship generally holds in the long-run, but short-term pricing has another component. You can call it psychology, emotions, or fear, whatever you like. In the short-run this intangible component can have a much larger impact on price than either supply or demand.




Let's take a look at the price of oil as an example. With oil spiking to its highest level in nearly nine months, it begs the question: has supply tightened or has demand increased?




On the supply side, if we compare current conditions to 18 months ago when oil was about $90 per barrel, we find that supplies have increased. We currently ... Log in or subscribe to continue reading.

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