Live on Bloomberg TV

00:00Barry Ritholtz knows that Paul Montgomery at a huge impact on how we study markets and it's not snarky to say Barry that Mr. Montgomery invented how we look at hemlines and how we look at magazine covers. What would Paul Montgomery say about today's magazine covers in crisis. So he was very much data driven behavioral economist before such a thing even existed. And whenever there was a popular again before means existed a sort of popular trading desk myth poll would go back and look at the data and say hey is this right or wrong. You know the data is what determines. So when he looked at magazine covers he found they fell into two distinct groups popular magazines and business magazines. One had great resonance for noting tops and bottoms the other pretty random and didn't mean anything. I look very at the study today and it's not weekly magazines. You and I Lisa were buffeted by minute by minute social media with a short time frame. How do we look for contrarian indicators given the new speed of information. So there's a lot of hedge funds and other quants and data geeks that are scraping Twitter and trying to see if there is actionable information contained in the whole of sentiment as indicated by the the quality and sentiment of various posts. And some have done it better than others. It's not quite a perfect science yet. It's a little bit of art and it's been pretty inconsistent. But the thinking is simply when you get a very crowded trade or a very crowded market perspective when everybody is bullish on oil as an example and runs the price up to one hundred and thirty dollars and the Russian minister of trade comes out and says let's see how the West likes 300 dollar oil. With my perfect hindsight I could tell you that was you know pretty much the top. And here we are 25 percent lower. A few days later we see this happen in speculative markets and where emotions get the better of traders. Although very I just sort of sit on the oil story for a minute because that is just a shocking move that we've seen the round trip over the past two weeks. How do traders maneuver around fluctuations like that not just in Bitcoin not just in penny stocks but in benchmark commodities that feed into all other prices which seems to be the new world that we're in at least for now. Well let's use lumber from last year as an example. You had everybody stuck in an apartment building with their spouse and their kids. And it was no elbow space remote work remote learning remote play. People wanted a little room. And so there was a mass move to pick up some houses far beyond the available supply of single family homes. So what happens. People start building more homes and the demand for lumber skyrockets. But as every commodity trader knows the cure for high prices is high prices. And when lumber prices double the mills go out and they cut down more trees. And lo and behold now there's sufficient supply. And that seems to happen with very few exceptions. Semiconductors which have this long ramp up period too when you're starting from scratch to actually produce chips. The cure for high prices is high prices eventually but it's not like go cut down a tree and gypsum but two by fours. Here's my objection with that. This all makes sense over a period of say a year or even six months or even a month. Not necessarily two days. Right. You're not gonna get that kind of response in a day. You're not gonna even be able to game it out in a day. And I wonder if the fluctuations in the financialization that we're seeing in commodities has changed the game and made it more difficult more harrowing for investors to use as that hedge to inflation. What are your thoughts on that. So so keep in mind when we look at the futures markets when we look at commodity markets you have two players. You have the hedgers who actually are consuming or producing. We're selling the commodity and then you have the speculators. And in a fast moving situation like a war let's say Russia and Ukraine. The consensus in the thought process sometimes that knee jerk reaction is wrong or fails to consider all of the other aspects. So the spike in oil is 3 percent of the world's oil market is now not going to be selling into the global economy. Oh my God there's a shortfall. And then by the next day it's like oh but China is going to buy it. And you know this is why boycotting any companies production of any good it finds its way into the global market and saw ISE sudden. Oh so China instead of buying it from Australia or the Middle East is going to buy it from Russia but that there goes your spike in oil.

No schedule data available.

Cure For High Prices is High Prices, Says Ritholtz

Barry Ritholtz, Bloomberg Opinion Columnist and Ritholtz Wealth Management Chairman and CIO, says the cure for high prices is high prices. He speaks on "Bloomberg Surveillance". (Source: Bloomberg)

More From Bloomberg Surveillance
All episodes and clips

Bloomberg Technology
The only daily news program focused exclusively on technology, innovation and the future of business from San Francisco. Hosted by Emily Chang.
More episodes and clips